January 2020 – Inheritance Tax – Prospect Of Some Lifting Of The Burden

Author: Mitchells Roberton
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On 14th January the Inheritance Tax Act 1984 (Amendment)(Siblings) Bill was given its first reading in the House of Lords. What is it all about? Before turning to that some background:

Inheritance Tax (“IHT”)

  • Inheritance tax is a tax on transfers of wealth, mainly levied on a person’s death.  There is a range of exemptions and reliefs. The most important exemption is for spouses and civil partners: transfers between the parties to a marriage or a civil partnership are, in general, wholly exempt from IHT.

The Burden case

  • The fact that the spouse/civil partner IHT exemption is restricted to spouses and civil partners was challenged in a high-profile case back in 2008 which had a full “Grand Chamber” hearing in the European Court of Human Rights.
  • The case was brought by two sisters Joyce and Sybil Burden who were both in their eighties at the time of the judgment. They had lived together in a “stable, committed and mutually supportive relationship” all their lives and had lived together for over 30 years in a house built on land inherited from their parents.
  • They had made wills leaving their property to each other. Their concern was that, when one of them died IHT would be payable on the estate passing to the survivor. They were worried that their house would have to be sold to pay the tax.
  • They contrasted their position with a married couple or couples in a civil partnership; in both those situations there would be an exemption from IHT on the death of the first to die. In effect, Joyce and Sybil complained of discrimination in that they did not enjoy the same IHT exemption.
  • A significant element to their complaint was that they were prohibited from entering into a civil partnership so as to get the IHT exemption because they were sisters.
  • They lost; by 15 votes to 2.
  • But the two judges who disagreed with the majority gave robust dissents. For example, Judge Borrego said:

“… the Grand Chamber, instead of trying to explain the difference in treatment for tax purposes … did not give a reply to the applicants, two elderly ladies, [which] fills me with shame, because they deserved a different approach. I would like to close by quoting Horace, who wrote in Ars Poetica: ‘parturient montes, nascetur ridiculus mus’ [‘the mountains will go into labour, and give birth to a ridiculous mouse’].” 

  • But they still lost.

The Inheritance Tax Act 1984 (Amendment)(Siblings) Bill 

  • The Bill, if enacted, could have sorted the matter for the Burden sisters – although, sadly, it will be too late for them now.
  • In essence, the Bill provides that if siblings have lived together continuously in the same house for seven years  and one gifts property to the other that transfer will be exempt for IHT provided the sibling to whom the property is gifted is aged at least 30 when the gift is made.
  • “Sibling” is defined as meaning “a brother, sister, half-brother or half-sister”.
  • The amendment will not apply to cohabiting couples generally. The answer to that may be that cohabiting couples may marry or enter into a civil partnership and so secure the IHT exemption. That option is not open to siblings.
  • As with most rules one can picture hard cases. For example, suppose two orphan siblings aged 29 (“S1”) and 31 (“S2”) have lived together in the house they inherited from their parents over seven years ago. S2, the 31 year old, dies leaving everything to S1, the 29 year old).  That gift would not qualify for the IHT exemption under the Bill as currently drafted.
  • But the Bill will have to go through a second reading, committee stage, report stage and third reading in both the House of Lords and the House of Commons before it can become law. And if it is enacted at all it may get amended quite a bit along the way.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Allyson Gilchrist: email ag@mitchells-roberton.co.uk

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