Following the haphazard manner in which changes to the UK’s non-domicile tax regime were introduced effective 6 April 2017, the UK’s reputation for having a relatively stable IHT regime was badly damaged. It was therefore envisaged that no further significant changes would be made to the UK's inheritance tax (“IHT”) regime for the foreseeable future. Such optimism now looks misplaced.
In an unanticipated move, HM Treasury has requested that the Office of Tax Simplification (“OTS”) carry out “a review of a range of aspects of IHT and how it functions today, including its economic incidence, to identify simplification opportunities”.
The OTS has committed to publishing a report this coming autumn which will cover the following:
- Provide an initial evaluation of aspects of the current IHT regime;
- Identify opportunities for simplification of the current IHT regime; and
- Offer specific recommendations for simplification of the current IHT regime for HM Treasury to consider.
The suggested scope of the OTS’s review is wide ranging and covers everything from the administration of IHT to the perception that various stakeholders, such as taxpayers and practitioners, have of the current IHT regime. Of particular relevance to High Net Worth Individuals (“HNWIs”) will be the OTS’s focus on the following areas:
- The various gift rules and how these interact with each other, including the annual threshold for gifts and small gifts;
- The normal expenditure out of income rules;
- The complexities arising from the various IHT reliefs and how these interact with the wider IHT framework; and
- The scale and impact of the IHT regime, aspects of the taxation of trusts rules and capital gains tax rules on taxpayer’s investment decisions, timing of transactions and asset prices.
While the desire to simplify the IHT regime should be applauded, taxpayers (particularly UK non-doms) investing in UK must be able to do so with confidence in the relative stability of the IHT regime.