The independent adviser to the government says that too many people have to fill in IHT forms.
The body made the comments to Chancellor Philip Hammond who ordered a “simplification” review of the tax which is netting an increasing amount for the Treasury but with signs that too many people are being forced to complete unnecessary paperwork.
More than 3,500 people shared their views about Inheritance Tax Forms. Many complained that despite the difficulties they faced coping with bereavement they were being asked to fill in complicated forms even where the relative who had died had only left a small amount.
The OTS says although Inheritance Tax is payable on less than 5% of the estates of the 570,000 people who die in the UK each year around half of families have to fill in the forms.
Many said that their relative had worried about inheritance tax during their lifetime even though it was not going to affect them.
The Office Tax Simplification is undertaking a two-part review of IHT in response to the request from the Chancellor of the Exchequer in January. Its first report has been published this week.
It highlights the benefits of:
- reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay
- simplifying the administration and guidance
- the advantages of banks and other financial institutions having standardised requirements
- automating the whole system by bringing it online
Angela Knight, OTS chairman, said: “Inheritance tax is both unpopular and complicated. The recommendations in this report will make it easier for the majority, and would mean that in future, many may not have to do the forms at all.”
The OTS received nearly 3,000 responses to an online survey, a further 500 emails from individuals and over 100 written responses from experts.
Some of the main issues highlighted to the OTS review were that:
- completing forms is hard, and it can be difficult to work out which form to use
- the amount of information required can be disproportionate, especially in cases where no tax is due
- the guidance provided can be difficult to navigate
- people would like HMRC to provide receipts for tax payments
AJ Bell says the OTS changes would save 250,000 families from filling in IHT forms. It says 13% of people spend more than 100 hours dealing with inheritance tax.
Laura Suter, personal finance analyst at AJ Bell, said: “It is ridiculous that ten times the number of people fill out the form associated with inheritance tax than actually pay it.”