Fear-inducing inheritance tax is ‘ripe’ for overhaul, says Treasury

INHERITANCE tax frightens people and will be examined to establish whether it is “fit for purpose”, a senior Treasury adviser has said.

The Office for Tax Simplification has started an online questionnaire into the tax as part of a consultation that reports in October, just before the Autumn Budget. The review will examine whether the tax, which is expected to raise £32 billion between 2016 and 2022, is too complicated.

One concern is that because of its complexity people do not know how to avoid the tax legally, or how to be sure of when the tax is triggered.

Angela Knight, the chairman of the Office for Tax Simplification, said there was “quite a high degree of complexity” around the tax.

Ms Knight, a former Tory MP and Treasury minister, said the tax was “ripe for a look at”.

She added: “This is a tax that people fear. They think it is going to happen to them. The fact that more people are concerned about it than are actually going to be liable for it puts the question mark over its operation.”

Ms Knight described how she had to call in a financial expert when she was an executor of a “simple estate” to ensure she had not triggered the £325,000 threshold, above which the 40 per cent tax is payable.

The review was promised by Philip Hammond, the Chancellor, in January. Now, taxpayers are being asked to fill in an online survey asking for views on the various exemptions.

It is asking about “the ease or complexity of the legislative rules and the processes to follow” when a relative dies and an executor has to work out if there is a liability for inheritance tax.

Separately, a Resolution Foundation report proposes today that inheritance tax should be abolished and replaced with a lifetime limit for recipients of £125,000 before levies kick in. Any money raised would fund a £10,000 payment to help 25-year-olds get on the property ladder, pay for education, invest in pensions and set up businesses.