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Inheritance Tax: Cohabiting Siblings

Volume 810: debated on Wednesday 10 February 2021


Asked by

To ask Her Majesty’s Government what plans they have to make transfers of property between long-term, cohabiting siblings exempt from inheritance tax.

My Lords, while the Government are understanding of the issue, there are no plans to exempt transfers of property between long-term cohabiting siblings. The inheritance tax spouse exemption is long-standing and reflects the formal legal obligations that marriage and civil partnership relationships necessarily entail. Extending that would be precedent-setting, as no analogous legal status exists between cohabiting siblings.

My Lords, can there be any doubt that siblings who share their lives in jointly owned homes represent strong, stable families? It is a fundamental principle of conservatism to support all families. Why therefore do the Government continue to deprive these families of the protections that they deserve, no less than married couples and civil partners, to ensure, among other things, that no bereaved sibling has to face the agony of selling the family home on the death of a loved partner in order to pay an inheritance tax bill?

My Lords, of course the Government recognise the strong family ties that my noble friend refers to. However, that is a different matter from the formal legal obligations that marriage and civil partnership relationships entail. I also remind noble Lords of the context that 95% of estates pay no inheritance tax at all.

My Lords, could my noble friend explain why the Treasury thinks a sexual relationship is necessary to avoid the trauma of losing one’s home to pay inheritance tax when one member of a long-standing couple dies?

As I said to my noble friend Lord Lexden, the issue is around the unique legal relationship that marriage and civil partnerships entail. No similar legal relationship exists for siblings.

Does the Minister agree that life can be very unfair to single people and elderly people? This law is discriminatory. Siblings and family carers may have struggled on for years looking after each other, and they are saving the state a fortune in social care. Why should they not enjoy a tax deferral when one of them dies, especially since the state will recover on the death of the second survivor?

I remind noble Lords of the context that each individual can pass on at least £325,000 without any inheritance tax charge. That is well above the average house price in the UK. For those who are affected, there are also provisions where it is possible to have 10 years to pay off inheritance tax in instalments if the estate contains a house that is unsold.

My Lords, to follow up on the interesting question from the noble Baroness, Lady Deech, is there not a compromise? If the problem is a requirement for a sibling to sell a jointly owned and occupied property to pay IHT, why not simply defer the deceased’s liability, thereby leaving the surviving sibling undisturbed? The taxman would ultimately be paid. This could be done on the basis of a charge on the property, perhaps even tapered in favour of the Revenue or the surviving sibling, dependent on tax rate policy.

My Lords, to add to my previous answer, for those in certain circumstances, joint ownership would also mean that a house had to exceed £650,000—more than the average house price, including in London—to be liable for inheritance tax. As I say, there are arrangements in place whereby you can have up to 10 years to pay off inheritance tax in instalments if the estate contains an unsold house.

My Lords, in support of the noble Lord, Lord Lexden, without a change in the law, it pushes siblings who can afford it to employ expensive lawyers to incorporate a discretionary trust in their wills, which on a joint estate of £800,000 will save tax of £130,000, not as the Minister has just said. Does she agree that there is an urgent need to change the law to make such imaginative tax avoidance unnecessary?

My Lords, I am afraid the Government do not agree that this is an urgent issue. It is an issue that we have debated a number of times in this House, and, while we have sympathy with those who may be affected, we emphasise that it is a minority of people. Having looked very carefully at this issue, we believe that the current status is the right one.

My Lords, in the run-up to the Spring Budget, surely the Treasury should be grappling with questions such as the one raised by the noble Lord, Lord Lexden. However, many people across the UK are concerned not about the intricacies of inheritance tax but about rising council tax bills and the potential for Covid-19 economic support to be withdrawn in just seven weeks’ time. Is the Minister able to offer any reassurance to those who are struggling to make ends meet?

My Lords, without previewing the Budget in a few weeks’ time, I can reassure the noble Lord that all measures to support families during this difficult time are kept under review. Those reviews take into account the current circumstances that the country faces.

My Lords, inheritance tax hits people when they are at their most vulnerable—when they are bereaved. It is an unfair tax, paid on taxed money by only around 5% of estates, penalising all those who have done the right thing and saved for their old age. Surely we should be encouraging families to live together. Please can the unjust tax situation be looked at again, with a view to remedying this particular situation about siblings?

My Lords, the Government understand that individuals work hard to build up their assets to pass on to their families. That is why the nil rate for inheritance tax exists and, as my noble friend has noted, exempts the vast majority of estates from paying inheritance tax. I also note that it makes an important contribution to the funding of public services in this country, equivalent to around 1p on income tax.

My Lords, the Minister tells us that 95% of estates do not pay any inheritance tax. In that case, could she tell us what estimate Her Majesty’s Treasury has done of the infinitesimally small number of people who would come under this situation? Has it done any research? Does it have any evidence to show what the impact on revenue from inheritance tax would be if it were to make this legal change, so that those of us who want to see that change can bring about Private Members’ Bills to so address this issue if it is unwilling to do so?

My Lords, the Government are of course aware of my noble friend’s previous Private Member’s Bill on this subject. The question is not just one of cost; it is about legal relationships between individuals. Married couples and couples in civil partnerships have a unique legal status and it is difficult to see why cohabiting siblings should benefit where other cohabiting family members, for example, would not.

The unfairness in law that the noble Lord, Lord Lexden, has rightly highlighted goes well beyond the question of inheritance tax. In my experience, cohabiting siblings in mining communities face a whole range of disadvantages in law. Should the Government not be looking at the whole issue of the rights of those who choose to cohabit as, say, brothers and sisters?

My Lords, that is a broader point, but I am afraid I am going to have to disappoint noble Lords: the Government have looked at this issue in the context of inheritance tax, and may have looked at it more widely. In the context of inheritance tax, the unique legal relationship that marriage and civil partnerships entail has been concluded as the right place to draw the line on this issue.

Does the Minister agree that there is a considerable risk within the proposal from the noble Lord, Lord Lexden, that family members would find themselves being put under duress not to marry, to preserve family property and so on? It is not the wholly benign measure that he would lead us to believe.

My Lords, I am not entirely sure that that is the Government’s motivation for disagreeing with my noble friend Lord Lexden. The difficulty is around drawing the line between the legal status of marriage and civil partnership and the other status that cohabiting family members may have. It may not necessarily be around the less benign implications of drawing the line in a different place.

My Lords, the time allowed for this Question has now elapsed. I apologise to the noble Lord, Lord Colgrain, that there was not time to take his question.