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Taxation: Inheritance Tax

Volume 701: debated on Wednesday 7 May 2008

asked Her Majesty’s Government:

Whether they plan to place cohabiting and dependent close family members on an equal footing with married couples and civil partners in relation to inheritance tax.

My Lords, the Government have no plans to alter the inheritance tax rules for cohabiting and dependent close family members. The inheritance tax spouse relief is long-standing and reflects the formal legal obligations that marriage and civil partnership relationships necessarily entail.

My Lords, I thank the Minister for his Answer. Does he recall that the unfairness of giving inheritance tax breaks only to those in a sexual relationship, regardless of need, was recognised by Jacqui Smith, then the relevant Minister in the other House, who said that this issue needed to be addressed at the appropriate time? Will the Minister now consider doing justice to elderly sisters who live together and to children who care for elderly parents in the same house by allowing, through legislation, for the inheritance tax to be deferred until the death of the second resident, thereby doing justice and probably saving the state a great deal of money?

My Lords, this issue has been the subject of intensive debate as the two sisters Burden took their case to the European Court of Human Rights for adjudication. The adjudication was in favour of the Government. That is against a background where the line has to be drawn somewhere and, at the present time, a clear line is drawn in terms of spouses, either of marriage or of civil partnerships. The noble Baroness is inviting the Government to extend that line and consider other cases. Wherever the line is drawn there will be difficulties, and there would be costs to the Exchequer if the exemptions were extended. It should be recognised that only 4 per cent of estates in Britain pay inheritance tax.

My Lords, will my noble friend develop the proposal suggested by the noble Baroness, Lady Deech, and publicise it? It is not to exempt elderly sisters, middle-aged women looking after elderly parents and cohabiting couples but to ensure that the death duties payable on the first death are rolled over so that they are not necessarily paid until the second death, thus allowing the elderly sister, for example, to remain in the home until her death?

My Lords, I recognise the constructive position which my noble friend has adopted on this matter. The Inland Revenue is not in the business of dispossessing people of their homes. That has not yet happened because the two sisters are, happily, alive and well. When such a case occurs, the Inland Revenue takes due care to ensure that the payments are staggered over a period in order that someone should not be dispossessed of the home they may have lived in for a long time. The present practice encompasses exactly the position identified by my noble friend, but that is different from changing the law on inheritance.

My Lords, does the Minister accept that while the current situation may be clear, it is also seen by many people to be extremely mean-spirited? Could the Government make an assessment of the costs of making the changes suggested by the noble Baroness, Lady Deech? I suspect that, in the overall context of government and tax expenditure, they would be very modest.

My Lords, they certainly would not be huge. As I have indicated, inheritance tax is not paid by 96 per cent of estates at present, so we are not talking about a massive loss to the Revenue—I freely admit that. We are, however, dealing with where the legal position should be drawn. I wanted to indicate to the noble Lord, in reply to my noble friend, that HMRC works sympathetically in cases such as the one that has been identified by the two sisters. No one is contemplating one of them losing her place in the home if the other dies. That will not happen.

My Lords, when the noble Lord leaves the Chamber, will he reconsider his rather lugubrious negativism on this issue? As the civil partnerships arrangements show, society moves on and so do Governments. Recognition of different ways of living and different circumstances are taken into account. Although we are talking about a small number of people, there is a genuine issue of hardship here. The issue raised by the two noble Baronesses about the benefit to society of the sort of change envisaged by the noble Baroness, Lady Deech, ought also to be taken into account. Perhaps he could think again.

My Lords, I am grateful to the noble Lord for the invitation to think positively. He will appreciate that although society might move on, the law moves on only when the Government overcome forthright opposition to changes in this area. It is not as if the issue of civil partnerships has not been contested in the past by others in the House.

It is clear what the categories are under the present law with regard to inheritance, but it becomes much more difficult the moment we move from that situation to additional categories. We could easily say that two sisters living together could easily be defined as being within the law, but it is not difficult to see how other very difficult cases could arise on the other side of any line that we draw. The significance of the line that exists at present is that it is based on the law of the mutual relationship of spouses and cohabiting partners and their legal obligations to each other.