Her Majesty’s Revenue & Customs is unlikely to be your favourite government department. But you have to pity the poor bean counters.
It can’t be fun spending all day sending brown envelopes across the country in the hope of collecting enough tax to save the Chancellor’s blushes on Budget day. But now the tax office has gone too far in its pursuit of our money.
Last week it emerged that grieving families had been sent demands to pay tax on inherited pensions. You might think that sounds entirely reasonable – after all, we’ve all heard Benjamin Franklin’s famous adage that death and taxes are the only certain things in life. However, in this case the rule does not apply.
Just over a year ago George Osborne made sweeping changes to the pensions system. The headline reform was the removal of shackles that meant most people bought annuities. A shake-up of the tax system around how pension savings are passed on after death was just as important but garnered far less attention.
As a result, if you die under the age of 75 then untouched savings including those held in pension investment accounts – known as drawdown contracts – or in joint life, fixed term or protected annuities, are passed on entirely tax-free.
So far, so fair. But no-one seems to have told the Chancellor’s colleagues at the tax office. Instead, people inheriting savings held by partners or relatives were told they owed tax when they did not.
The Government admitted its mistake but claimed only a ‘tiny’ number of people were affected and that it did not actually collect the tax. Given HMRC deals with millions of people every day, it’s anyone’s guess how it defines ‘tiny’. In any case, whether ten people were affected or 10,000, the episode raises worrying questions.
Other organisations have made huge strides in helping people dealing with the loss of a loved one. Many local councils use the ‘tell us once’ service where informing the authorities of a death does not need to be repeated endlessly. Likewise, following press campaigns, high street banks have pledged to retrain staff and revamp websites to make it easier to find dedicated helplines.
Last week’s insensitive blunder at HMRC points to something even more concerning than how large organisations support individuals through times of mourning.
Back in November the first details emerged of plans to turn 170 local HMRC offices into 13 regional hubs over the next decade. Former HMRC boss Lin Homer said the changes were needed to ‘transform our service to customers and clamp down further on the minority who try to cheat the system’. Tax experts warned that such drastic restructuring – part of a move towards cheaper, online services – would put the organisation under intense pressure.
Perhaps last week’s cock-up is the first sign of those doom-laden predictions coming to fruition. The death tax reforms were first mentioned at the Tory party conference 18 months ago – surely enough time to iron out any issues.
Cuts at unpopular departments like HMRC will always be easier to tolerate than emotive areas like education and health. But society needs to be able to trust in the people that collect the taxes, which in turn pay for schools and hospitals.
Unglamorous as it is, HMRC must be fully staffed and resourced. How else can it deal with the constant stream of government changes at the same time as keeping up with those intent on contributing as little to the national coffers as possible?
Sam Brodbeck is Head of News at Money Marketing
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