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Taxation: Inheritance Tax

Volume 733: debated on Wednesday 21 December 2011


Asked By

To ask Her Majesty’s Government whether, in the light of the Law Commission’s Report Intestacy and Family Provision Claims on Death, they intend to review inheritance tax law.

My Lords, there are no plans to review inheritance tax law in the light of the Law Commission’s report. The first £325,000 of every estate is exempt from inheritance tax. Inheritance tax is not usually paid on transfers of assets between spouses or civil partners. Only 3 per cent of estates are expected to have an inheritance tax liability in 2010-11.

The Answer does not surprise me but does disappoint me. Perhaps we do not need to look as far as the whole inheritance tax law situation. My concern is about people who live together long-term as carers or sisters—there is the famous case of the Burden sisters—and yet on the death of one, they are often forced to sell their home. Would it not be possible, even for the Chancellor in his Budget, to agree that under such circumstances there should be no obligation to sell the family home? To make people homeless at the present time, when things are pretty desperate for many people, would perhaps cost the Treasury more in the social benefits that they will require than exempting the home in which they have lived for so many years.

My Lords, it would be nice to come to the House bearing gifts in answer to the final Question before the Christmas Recess. However, I think noble Lords would be surprised if a Treasury Minister, of all people, came here to give some good news on this or much else. I say to my noble friend that I hear—

If we want good news, the borrowing figures announced today for November are ahead of market expectations. I can bring good news, but not gifts. Seriously, I hear very loudly what my noble friend says. Indeed, the Law Commission report, which has just come out and to which the Government will reply within 12 months, addresses the question of co-habitants. I see that the report at paragraph 8.52, which my noble friend may have seen, notes that concerns were raised about the use of the word “couple” in our provisional proposal in that it was too broad and ambiguous a term and might not be sufficiently precise to exclude, as we intended, those who share a home but do not have an intimate relationship. Indeed, this is not an area that is covered in the Law Commission’s work.

My Lords, does the Minister not accept that an inheritance can completely undermine incentives in recipient generations? Is that not an argument for increasing the take from inheritance taxes?

My Lords, the Government keep all tax matters under review, but we have no plans, as I have said, to change the law on inheritance tax.

Although there is to be no review, in the old days I simply signed a piece of paper and gave it to my son to give him power of attorney but now I am told that I have to do it through a lawyer, which will cost me a lot of money. Is that relevant to the review that has just taken place?

My Lords, I do not believe it is relevant to this review, but my noble friend Lord McNally is sitting alongside me and is no doubt listening very hard to the point that my noble friend makes.

My Lords, the Minister said that it will take up to six months for the Government to reply to the Law Commission’s report. Why should it be necessary to take so much time? As the noble Lord knows only too well from recent events, there is a new procedure for getting Law Commission reports through this House if legislation is required. Will not the Government’s delay make that so much more difficult?

My Lords, I understand that there is a protocol between the Government and the Law Commission that says that the Government have up to 12 months to give a provisional response to a Law Commission report.

The proposals in the Law Commission report, which is the subject of my noble friend’s Question, relate to intestacy, the most difficult period in people’s lives. In those circumstances, may I urge on the Minister and his colleagues to move more quickly than 12 months as this is a very technical and straightforward matter, not just in terms of giving a response, but also in terms of putting pressure on the Government collectively to legislate on this matter in the next Session?

My Lords, I hear clearly what my noble friend says and I am sure that the Ministry of Justice will want to move faster, but I am just giving what the backstop date is.

I think that everyone is in agreement that the structure of inheritance tax at the moment is unsatisfactory, as illustrated by the data that the Minister presented in his Answer. It has stimulated a large avoidance industry and it contains perverse incentives. In the spirit of the season, may I offer the Minister the gift of a constructive proposal? We should cease to levy inheritance tax on estates and instead should levy it on recipients. That would significantly reduce avoidance and would incentivise the wider distribution of wealth.

My Lords, as I said, we have no plans to review the law, but we are always interested in constructive suggestions, wherever they come from.

My Lords, perhaps I may rely on noble Lords' generosity at Christmas and dare ask what the latest position is with the proposal from Brussels to harmonise inheritance tax across the whole European Union. Does that prospect not make this debate somewhat superfluous, and what will the position be under the proposal? Will there be majority voting or will we be able to veto it if we do not like it?