At the moment, only those who are married or who are registered civil partners are exempt from paying inheritance tax (IHT) on money or property left to them by their spouse. This was expanded to include heterosexual civil partnerships at the end of 2019.
But the law does not cover people, e.g. siblings, who are cohabiting. They are liable to pay the standard IHT rate of 40% on anything over the £325,000 threshold.
The injustice this poses for some households was highlighted by the recent case of the siblings Catherine and Virginia Utley. They have lived together for over 30 years in the house in Clapham which they both bought. Despite being co-owners, when one of them dies the surviving sister will be forced to sell the property to be able to pay the IHT, estimated at about £140,000.
Shocked by the unfairness of this situation, Lord Lexden has brought a new Bill to the House of Lords. Under the new proposals, siblings would be exempt from paying IHT on property left to each other, provided they had lived together for at least seven years and that the surviving sibling was over 30. As well as brothers and sisters, the law would also apply to half brothers and sisters and be valid in England, Wales, Scotland and Northern Ireland.
While this would be good news for cohabiting siblings, some people feel the proposed changes do not go far enough. The new law still wouldn’t provide any protection for those who are cohabiting but who are not married or in a civil partnership. In this respect, the UK is way behind other countries.
A change to the law for cohabiting siblings in terms of IHT will raise questions as to where the line is drawn. Other platonic couples, such as parents and children, or friends who own a property together, may also want to be considered. The rules will have to be sufficiently tightly defined so as not to be open to abuse.
We are here now to help so please do not hesitate to contact us regarding your financial planning situation. Reviews and our Lifetime Financial Planning Service are all part of our added-value services for our clients.
We have set out above what is only a brief summary of some key points that involve quite complex considerations. Allowances, caps, levels and bases of, and reliefs from, taxation are subject to change and their value to you will depend upon your personal circumstances. Information and data may change after the date of their original promulgation in our Newsletter or this Focus article. Always seek relevant professional advice before taking, or refraining from taking, any action.
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