George Bull

Written by: George Bull

George Bull

Senior Tax Partner

IHT review: farewell to AIM BPR funds?

With inheritance tax at a turning point, in RSM’s Weekly Tax Brief we have previously commented on Chancellor of the Exchequer Philip Hammond’s brief to the Office of Tax Simplification to identify opportunities and develop recommendations for simplifying IHT from both a tax technical and an administrative standpoint.

The OTS has now published its call for evidence which addresses three problem areas. First, practical issues such as the filing of tax forms, related administrative problems and the guidance available from HMRC to address these. Second, the complexity of the IHT rules themselves. Third, the scale and impact of ‘distortions to taxpayer decisions’ caused by the IHT rules in relation to investments, asset prices or the timing of transactions. The deadline for responses is 8 June 2018.

In a welcome first for the OTS, the call for evidence is accompanied by a brief online survey which enables non-specialists with practical experience of completing IHT returns to make their own suggestions.

While the accessibility of the review is welcome, there is a genuine need for reform which will not be met simply by scrapping exemptions and reliefs. This is also a valuable opportunity to assess the way IHT deals with non-domiciled individuals and with trusts. The taxation of both has been subject to considerable modification over recent years, modifications which necessitate changes to the way people live their lives. Arguably, some of that is as it ought to be. But in other situations, neither the government nor HMRC seems willing to recognise that most trusts are not set up for tax reasons.

Although, predictably, the OTS emphasises that the review should not reduce the yield from IHT, there is an openness to consider the experience of other countries, and indeed any other aspects of the tax.

So what is the likely outcome of the OTS review? It's early days yet but the following look like distinct possibilities:

  • Simpler administrative arrangements for low-value estates.
  • A recommendation for a single nil-rate band on death at a level which achieves the policy intention of excluding modest estates, without the complexities imposed by the residence nil-rate band and by the transferability of unused allowance.
  • A different rate structure, perhaps in progressive bands. While the OTS has made it clear that it will not be advising on rates, there is nothing in the document to preclude it from commenting in principle on the introduction of banded rates. In reality, bands might ultimately be introduced covering a range from 10 per cent to 50 per cent on the largest estates.
  • A restriction of business property relief to unquoted companies. This would have a dramatic impact on the use of qualifying AIM-listed shares for investors wishing to build up an IHT-free portfolio.
  • No concessions for non-domiciled individuals or for trusts.

We hope that this once-in-a-lifetime review will restore a clear policy direction to IHT and will ensure that it operates in a fair, clear and certain manner. This is too good an opportunity to be missed.

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