By Martin Hall, Director at Optimus Pension Administrators Limited.
A year ago, the UK Chancellor of the Exchequer initiated a review by the Office of Tax Simplification (OTS) into the administration and technical complexity of IHT. The review, as it turns out, is going to be a two-parter, the first of which was published last November and principally focuses on administrative matters. The broad conclusion of Part 1 is that IHT is overly complex to assess and too cumbersome to collect, leading to inefficiencies for both payer and collector alike. There will be few who are taken aback by those findings and the report's principal recommendation - to digitalize the system - will not be considered ground-breaking by many.
It does, however, set the scene, acknowledge that there is a problem to be fixed and that doing so will be welcome by most of those affected by IHT, now or in the future.
Part 1 does also set out what commentators perceive to be problematic, in a technical sense, about the IHT rules specifically. It is hoped that Part 2, due in the Spring, will go on to make recommendations as to how to resolve these concerns. Until then at least, IHT will be subject to the usual rounds of speculation. Should it exist? Are the exemptions and reliefs relevant? Is the rate too high or too low?
We can continue to debate the possibilities until the Spring but, in the meantime, we should be pretty confident that IHT is not simply going to disappear. After all, the brief is all about simplification not viability and if the Chancellor was minded to use IHT as a politically expedient give-away, he could have done that several budgets ago, surely?
Given that Part 1 appears to be all about reducing the cost line by sharpening up the collection platform, it does seem rather counter-intuitive to then set about introducing recommendations that would also reduce the revenue line, with the prospect of little net gain to the coffers. By logical extension, should we therefore expect to see Part 2 focus on the kind of simplification that will bring more estates into scope, or at least maintain the status quo? That would seem sensible.
If you support this hypothesis, what is going to give? There's much to work with here, for example the headline rate itself, the gifting rules, various reliefs, the range of thresholds and, dare to say it, pensions. In a Utopian world in which logic applies, the cross-hairs would be closing in on some of the more archaic rules around gifts or those reliefs which may or may not achieve the (investment) purposes for which they were intended. Similar thinking would suggest that a headline rate north of 40% is a political blunder-in-waiting, as would be bringing pension savings into the scope of IHT.
Second-guessing fiscal policy is a mug's game but the second half of this is going to be intriguing. What is not in doubt is that there'll be plenty to keep private client advisers busy come the summer and, most likely, some new or enhanced planning techniques coming to the fore.
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