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Government rejects OTS proposals to simplify inheritance tax

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01/12/2021
The government has decided not to take on recommendations made by the Office of Tax Simplification (OTS) for inheritance tax.

 

The OTS has published a series of reports in recent years with recommendations to make the tax easier to understand and address inequalities. 

In 2019, it suggested cutting the period that gifts are eligible to be taxed from seven years to five and proposed abolishing the tapered rate of inheritance tax (IHT). 

Where a tax is to be paid, the OTS recommended clarifying the rules on who is liable to pay as well as how the £325,000 threshold is allocated between recipients. 

The following year, the OTS suggested a removal of certain reliefs for the tax including one which allows a married couple to pay no levy on the passing of up to £1m including the family home, due to the combination of personal tax thresholds. 

In a letter to the OTS, Lucy Frazer, financial secretary to the Treasury, pointed to the Chancellor’s announcement in the Spring Budget that the thresholds at which estates start to pay inheritance tax would be frozen until April 2026, saying this was done to “help rebuild the public finances and fund public services”. 

She wrote: “As you recognise, the combination of nil-rate bands, exemptions and reliefs means around 94 per cent of estates are forecast to have no liability over the coming years.  

“However, IHT still makes an important contribution to the public finances, and it is forecast to raise £6bn in 2021-22 to help fund public services.” 

“As a result, after careful consideration of your recommendations, the government has decided not to proceed with any changes at the moment, but will bear your very valuable work in mind if the government considers reform of IHT in the future,” Frazer added.

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