Does the inheritance tax system need overhauling?

Grant Thornton, is doing a strange thing for a firm of accountants: calling for tax to be made easier to understand.

The firm wants a full review of the inheritance tax system to create a new policy that is “effective, fair and easy to understand”.

This follows the results of the firm’s recent survey of more than 400 homeowners with properties valued over £250,000, which showed the majority found the current regime confusing and unjust. 

The most notable result from the survey was that 86% of those questioned wanted the main family home to be exempt. The current system is seen as unjust as if for example siblings live together in much the same way as a married couple do, the surviving sibling may be forced to sell the home.

A further 74% of those surveyed said small trading businesses should be exempt to help sustain growth in the current climate.

Others quite liked the idea of a sliding scale, eg: a 10% rate for children, 20% rate for other relatives and a 40% rate for non family members, combined with a ‘step’ rate of tax on the inheritance, starting at 10% above the current £325,000 threshold ‘nil rate band’ and moving up through 20%, 30%, 40% leading to 50% on assets above say, £5m.

Stuart Maggs, senior tax manager at Grant Thornton East Anglia, said: “What started off as a fairly straightforward system introduced in 1986 has now become a complex maze of traps for the unwary.”

For a full copy of Grant Thornton’s research report Ripe for reform?

The future of Inheritance Tax, contact Jayne Thrower on (01473) 298833 or jayne.thrower@uk.gt.com.