asked Her Majesty’s Government:

Whether they will change the law so as to exempt from inheritance tax close blood relations who have shared a home for a long period but who cannot marry or become civil partners.

My Lords, the Government keep all tax matters under review. Specific changes to specific taxes are a matter for the Chancellor in the Budget.

My Lords, I thank the Minister for that brief response. Does he agree that the unhappiness caused by levying inheritance tax on the remaining relative of a long-term cohabitation is disproportionate and unmerited? We were so caring of a small group in this House and in another place that we worked very hard to ensure that we brought in legislation that would relieve them of a burden. Do the Government not have the same desire for equity for this small group of people in our society?

My Lords, I am aware that these matters were debated extensively when the civil partnerships legislation went through the House; I was around for part of the proceedings, but not for the earlier part. We need to see this in context. We need to understand that 94 per cent of estates pay no inheritance tax whatever; that the inheritance tax threshold exceeds the value of the vast majority of homes; that not all estates include a house; and that very few comprise a house and no other assets. Most beneficiaries already have their own house and generally sell any house that they may inherit. The inheritance tax due on a house may be paid in instalments over 10 years, provided that the house is not sold. That offers a raft of opportunities to avoid the circumstances that the noble Baroness is suggesting.

My Lords—

My Lords—

My Lords, we should hear from the noble Lord, Lord Barnett.

My Lords, unlike those who have advocated the total removal of inheritance tax, such as some of my right honourable friends—former Cabinet Ministers who should have known better—does my noble friend not agree that this is a perfectly reasonable proposition? Will he therefore assure us that he will tell our right honourable friend the Chancellor of the Exchequer that the proposition is reasonable and worthy of serious consideration?

My Lords, most proposals to Chancellors are considered reasonable propositions. Indeed, I have no doubt that the Chancellor will read the transcript of this discussion. We need to understand that people who ask for reductions in tax need to say what public expenditure cuts will replace them or what other taxes will be imposed.

My Lords, the noble Baroness, Lady Wilcox, is drawing a comparison between parents and their children in relationships, or siblings in relationships, and their liability for inheritance tax. But if the Chancellor of the Exchequer were to consider with Christmas benevolence changing the tax regime, would the much closer analogy not be between married couples and registered civil partners on the one hand and unmarried cohabiting couples in so-called common-law marriages on the other, who have long-term and loving relationships?

My Lords, the noble Lord makes an interesting point but one that illustrates, once we get into this, the number of combinations that are possible and the difficulties in changing tax legislation so that it is precise and does not create a situation where inheritance tax in effect no longer applies at all. The legal status of any relationship is a constitutional matter. If it were decided that any other relationship should be afforded the same legal status as that of married couples or those in civil partnerships, Her Majesty’s Treasury would have to consider the appropriate tax treatment.

My Lords, will the Minister say whether there is any truth in the statement made by a member of his Government to the effect that the Government are working towards giving unmarried couples with children the same benefits as married couples with children—in other words, they would fall within the ambit of not having to pay inheritance tax, whereas people in long-term relationships as close-blood relatives looking after their parents would not? If that is not discrimination, I ask the Minister what is.

My Lords, I repeat that these are matters for the Chancellor in the Budget. I am not aware of the proposals on the specifics stated by the noble Baroness, but, if there are constitutional proposals to change the legal status of individuals, it may be that the tax legislation should follow. However, we are not yet in that position.

My Lords—

My Lords, it is the turn of the Cross Benches.

My Lords, further to the Minister’s earlier answer, can he estimate how much it would cost to implement this proposal?

My Lords, it depends on where you would draw the line—this is part of the problem—in deciding which relatives would be included, what period of cohabitation would have to be taken into account, and what would happen to half-brothers and half-sisters. Until you could be precise about such issues, it would be impossible to estimate the cost. Any reduction in the current take from inheritance tax—about £3.6 billion—would have to be replaced, or there would have to be public expenditure cuts to balance the books. What proposals are there to deal with that?

My Lords, I appreciate fully the force of this question, but does my noble friend agree that house prices have escalated to such an extent that an enormous number of people are now in the catchment area of inheritance tax? Does he think that measures should be taken to take them out of it?

My Lords, it depends over which period you look at house prices. Between 1986 and 2005, for example, the inheritance tax threshold increased by more than the rise in average house prices. If you start to look at specific assets and take them out, rather than to up-rate the threshold—the Chancellor has indicated an exemption threshold increase to £325,000 in 2009-10—you begin to distort the market. In particular, people would hang on to private residences when they would otherwise wish to trade down because they were a tax-privileged asset. That would distort the market.