Inheritance Tax Update Will Simplify Reporting Regulations


Following a review and subsequent recommendations released earlier this year by the Office of Tax Simplification (OTS), the government pledged to simplify reporting regulations, including scrapping mandatory reports where no tax is due. It is thought that when the new rules come into effect from 1 January 2022, 90 per cent of estates that are not subject to Inheritance Tax (IHT) will no longer need to complete IHT forms as part of the probate process, thereby reducing the administrative burdens for those dealing with inheritance tax.

Additionally, the temporary measure that is currently in place allowing those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will become a permanent change.

OTS also recommended the government should move to a fully digital system for inheritance tax, "ideally including the ability to complete and submit a probate application".

In further response to the report, the OTS published a letter it received from the Financial Secretary to the Treasury (FST) on behalf of the Chancellor in response to its first report on Inheritance Tax, in which Financial Secretary to the Treasury, The Rt Hon Jesse Norman MP said:

“I have asked my officials to continue work on the remaining recommendations: for digitisation, improving processes for lifetime and trust charges, guidance, and working with court services. Some of these are longer term in nature, and will be taken forward as part of the wider Tax Administration strategy.”

“The Government will respond to the recommendations made in your second Inheritance Tax report on simplifying the design of inheritance tax in due course.”

FST response to first OTS Inheritance Tax review

HMRC update spouse & civil partner inheritance tax guidance

The HMRC has also issued guidance for the first time on the definition of spouse or civil partner, as IHT does not define it and so instead the definitions come from general law.

HMRC explained: "Consequently, the exemption applies to transfers between people who are lawfully married to each other at the time of the transfer (this includes same-sex couples from March 13 2014 in England and Wales, December 16 2014 in Scotland and January 13 2020 in Northern Ireland) and to transfers between people who are registered as civil partners of each other at the time of the transfer.

HMRC laid out what constitutes a spouse under their rules:

Spouses include:

  • People who are legally married but separated
  • Parties to a valid polygamous marriage. The marriage confers the IHTA84/S18 exemption on all transfers to all the spouses of the transferor or deceased who qualify under IHTA84/S18. Where the IHTA84/S18 (2) limit applies because of foreign domicile of those spouses (IHTM11033), the total exemption (including any similar lifetime exemptions) may not exceed that limit.

Within the same guidance, HMRC confirmed civil partners are couples who have entered into a contractual partnership formally recognised by law under the Civil Partnership Act 2004 which came into effect on December 5 2005.

Within the inheritance tax manual, under the Spouse or civil partner exemption: definition of spouse and civil partner, it specifically states that cohabiting partners, not in a marriage or civil partnership, are not recognised in the IHT rules.

You can read further guidance on the definition of spouse and civil partner here: inheritance tax manual

Who is The Office of Tax Simplification? 

The Office of Tax Simplification (OTS) is the independent adviser to government on simplifying the UK tax system. The work of the OTS is rooted in improving the experience of all who interact with tax. The OTS aims to improve the administrative process – which is what people encounter in practice – as well as simplifying the rules.

Expert Inheritance Tax Guidance 

Whilst we welcome the simplification of the rules and look forward to further updates to improve the process, this is still a complex area of law that will affect all of us in one way or another at some point in our lives. We would always recommend that you seek the advice of an experienced professional when it comes to discussing Inheritance Tax Planning, compliance with the rules, Estate Planning or Probate.

At Russell & Russell, our specialist Estate and tax planning solicitors have the knowledge and expertise to provide comprehensive solutions tailored to your circumstances. If you want to discuss how to protect your assets and put in place efficient tax planning solutions, make an appointment to speak to us. Initial consultations are free and there is no obligation, so you will have a better idea of what your options are.

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