Call for overhaul of 'complex' IHT

Inheritance tax (IHT) has morphed from a straightforward system to a "complex maze of traps for the unwary", a report by Grant Thornton has concluded.

The accountancy and advisory business said IHT needed a complete overhaul as the "nuances" of the tax leave people frightened they will not be able to pass assets to their loved ones.

It said there continues to be a high level of confusion about the tax.

Its survey of 400 homeowners with properties valued at over £250,000 found 62% believed they would be liable to IHT on death.

However, quoting HMRC data, it said just 3% of UK estates were actually subject to IHT in 2010/11.

Grant Thornton's report proposed several changes to IHT.

A popular proposal among respondents to the survey was for progressive IHT rates, rather than the flat 40%. It said these rates could vary according to the nature of the payee's relationship to the deceased and the size of inheritance.

Others suggested modifications including an exemption when transferring
wealth to a spouse or civil partner (83%).

Meanwhile, a large number of respondents said IHT should be replaced with 'green taxes'. An unpopular alternative was an annual tax on wealth.

Francesca Lagerberg, head of tax at Grant Thornton,said: "One of the biggest issues around IHT is lack of understanding of the nuances of the tax, people are really scared that they won't be able to pass their assets on to their loved ones.

She added the report had been sent to government ministers.