At a Conservative conference fringe event organised by the Institute of Economic Affairs and the Taxpayers’ Alliance, Chancellor Sajid Javid hinted that he could cut Inheritance Tax. After being asked whether he would scrap the tax, Sajid Javid shared how he understood arguments against the tax and suggested that he’s considering changes.
In response to the question, Sajid Javid said:
“First of all, we’ve already made some sensible reforms in that tax.” He added, “I shouldn’t say too much now but I understand the arguments against that tax.”
“You pay taxes already through work or through investments and your capital gains in other taxes, there is a real issue with then asking them to, on that income, to pay taxes all over again.”
“Sensible changes have already been made but it’s something that’s on my mind.”
Although the Chancellor has hinted that there may be an Inheritance Tax reform, it’s clear that there are currently no firm plans and if discussions are underway, they are certainly in the early stages. However, it has got us thinking about what would happen if Inheritance Tax was cut. Would there be an alternative tax instead? How would the government cope without the £5.36billion (based on the figures from the 2018/19 tax year) collected from Inheritance Tax receipts? Would there be changes to tax on income to compensate for the lack of Inheritance Tax?
How Inheritance Tax impacts estate administration
Inheritance Tax is a tax on a deceased person’s estate when the value is above the £325,000 threshold. The estate includes any property, money and possessions. However, if everything is left to a spouse or civil partner, a charity or a community amateur sports club then there’s typically no Inheritance Tax to pay.
Inheritance Tax is such a significant part of the estate administration process and it is one area that tends to cause families dealing with a bereavement a significant amount of stress. It can be difficult to understand and Executors or Administrators are legally and financially responsible for ensuring the tax is dealt with correctly.
Office of Tax Simplification review of the tax
Back in January 2018, the previous Chancellor, Philip Hammond, requested a review of Inheritance Tax and since then the Office of Tax Simplifications have published two reports outlining ways in which the tax could be simplified. The reports offered suggestions around how the administrative and technical aspects of Inheritance Tax could be improved.
The first report suggested that Inheritance Tax forms should be simplified and shortened, an automated payment receipts system should be introduced and they should streamline the probate and payment process with HM Courts and Tribunals Service. Additionally, the second report suggested making changes in areas where technical issues tend to arise, such as lifetime gifts, Capital Gains Tax, businesses and farms, and life assurance and pensions.
Source: The Society of Will Writers
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