Grant Thornton believes IHT is ripe for reform and is urging the Government to review the system

Paula Fraser, Director of Tax at Grant Thornton, which is calling on the Government to review the system and make changes so it’s simpler and fairer for future Scots generations, said:

“IHT is ripe for reform. What started as a fairly straightforward system over 25 years ago has morphed into a complex maze of traps for unwary Scots.

“There are a number of countries across Europe where the concept of IHT doesn’t exist.  So scrapping it is a possibility as the costs of administering IHT would be saved – allaying Government fears that any change would impact on its coffers during difficult economic times.”

Replacing the current system with Capital Gains Tax (CGT) on death

“A robust and efficient system needs to be adopted in place of the current system and one alternative is replacing it with Capital Gains Tax on death.

“Currently, both Capital Gains and Inheritance Tax (IHT) are potentially chargeable on any gift or transfer on death, and a complex series of rules dictates how the two interact. If one spouse or civil partner is very unwell, it may be best to transfer all family assets to them, and on death any uncrystallised gain is wiped out, and there is no IHT to pay on transfers between spouses or civil partners.  Such assets can then be sold after death with little or no CGT currently being due.

“Instead of this oddity, IHT could be abolished altogether along with CGT reliefs that currently exist around gifts and death. This would be an important conceptual change as IHT is currently levied on the net wealth of individuals and trusts. But changing the tax in this way would instead charge the profit that Scots make during their lifetime an entirely different concept.

“Any attempt to follow this route would require careful examination of the figures to see whether a CGT charge on death would create the same level of tax take as IHT currently realises.

“However, there are systems already in place to deal with this by virtue of the existing self-assessment returns, and again this should lead to significant savings compared to administering a totally separate IHT system.”