IHT simplification proposal anything but simple

By Lenore Rice

The HMRC has supposedly been trying to simplify the UK tax system, generally considered to be one of the most complex in Europe, if not the world. It's recent consultation to changes on the Inheritance tax system has been criticised for adding even more complexity, as opposed to making things simpler.

The main proposal attracting criticism is to split the inheritance tax nil-rate band between all trusts created by a settlor - currently the nil-rate band applies to each separate trust. If brought in, the change would affect existing trusts as well as new ones. The change would get rid of an inheritance tax planning tool used by many to lower their inheritance tax obligations, and thereby increase the revenue to the HMRC, but it does not however do anything to simplify the tax system.

Currently, an individual might be advised to set up multiple pilot trusts and therefore benefit from the nil-rate band on each trust, with all the assets spread across the various trusts attracting less or no inheritance tax.

The Institute of Chartered Accountants in England and Wales (ICAEW) says the proposal "is more of a revenue-raiser than a simplification", and adds that they replace one set of complex rules with a new set of even more onerous complex rules.

If the proposal is made into legislation it will almost certainly be included in the 2014 Finance Bill.

If you require legal advice in respect of inheritance tax, trusts, capital gains tax, or general tax planning, contact one of the inheritance tax specialists at Wilson Nesbitt solicitors by calling 0800 840 9288.

Or to read more information about tax click here.