Tax reliefs inquiry

AAT agrees with the likes of the National Audit Office, Public Accounts Committee, Office for Tax Simplification and others that the system of tax reliefs in the UK is in need of urgent reform. AAT notes that HMRC has committed to providing more public information on the costs of reliefs and that since 2019 new cost estimates have been published for around 120 reliefs, which amounts to around 10% of all reliefs.

Problems with forecasting the cost of reliefs (both underestimating and overestimating) have a range of negative consequences for the effectiveness of reliefs and requires significantly more attention.

AAT believes there is some room for reform of the major tax relief expenditures. For example, reviewing zero VAT ratings for water, new dwellings and books, magazines and newspapers amongst others.

AAT repeats its long standing recommendation to halve the headline rate of Inheritance Tax from 40% to 20% and simultaneously end major Inheritance Tax reliefs. 

AAT also repeats its long standing recommendation to reform pension tax relief. AAT supports the replacement of the existing 20%, 40%, 45% pension tax relief with a single flat rate alternative of 20%. This would represent a reduction for higher earners, protection for basic rate payers (as they will continue to receive the same level of relief as now) and a multi-billion pound annual dividend for the taxpayer.

Anyone using a regulated agent, ie a tax advisor or accountant who belongs to a relevant professional body, is likely to be made aware of any tax reliefs that they may be entitled to. This is not always the case in respect of the third of agents who are unregulated, ie those who do not belong to a professional body. The government should compel anyone providing paid-for accountancy and tax services to be a member of a professional body in the same way that over 200 other UK professions require professional body membership.