MPs urge simpler inheritance tax system
More needs to be done to simplify the “overly complicated” inheritance tax system, an influential group of MPs has said.
While the Inland Revenue (IR) has made progress in easing the bureaucratic burden on relatives, the committee of public accounts said today that the system is still too complex.
The government takes 40 per cent of the value of everything passed on over the government’s threshold, which in March was increased from £263,000 to £275,000, rising to £300,000 by 2007.
But consumer groups have complained that the increases in the tax threshold have not kept pace with rising house prices, meaning there has been a five-fold increase in the number of properties valued over the threshold in the last ten years.
Today’s report commends the IR for managing the resultant increased caseload on similar levels of staffing, and says cases are being settled more quickly.
“Given the increase in recent years in the number of people affected by inheritance tax, I am glad that the [Inland] Revenue has made progress in easing the burden on relatives trying to sort out the tax affairs of people who have died,” said Edward Leigh, chairman of the committee, when the report was compiled.
But he added: “I am concerned that people who are grieving for a loved one are still being confronted with paperwork which is overly complicated. More can be done to make it easier for those who are recently bereaved to carry out the necessary business with the taxman.”
Shadow chancellor George Osborne welcomed the report, saying the tax system should be “sensitive to people grieving the loss of relatives” and should be designed with ordinary people, not professionals, in mind.
Mr Osborne also highlighted the extra paperwork caused by the government’s insistence that a tax return be filled in for every estate worth more than £5,000, despite the fact that inheritance tax is only paid on estates worth more than £275,000.
“Instead of simplifying inheritance tax forms, the government is asking more people to fill them in,” he said.
The report also recommended that the IR take advantage of its powers to impose penalties for negligent inaccuracies in tax returns, noting that the organisation has yet to calculate how much tax is lost from non-compliance, even though it is beginning to tackle this problem.
“It is also important that the Revenue comes down firmly on those who cheat by knowingly giving false information on inheritance tax forms. Until now, it has been too lenient in the penalties it imposes,” Mr Leigh said.
