Currently, 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 late 2019. But the law does not cover siblings who live together. They are liable to pay the standard inheritance tax rate of 40% of anything over the £325,000 threshold.
The unfairness this poses for some households was highlighted by the recent case of Catherine and Virigina 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 unfair IHT, estimated at about £140,000.
Shocked by the injustice of this situation, Lord Lexden has proposed 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, as long as they had lived together for at least seven years and that the surviving sibling was aged 30+. As well as brothers and sisters, the law would also apply to half brothers and sisters. This will be valid in England, Wales, Scotland and Northern Ireland.
What about other types of couples who own a property together?
While this would be good news for cohabiting siblings, some people feel the proposed changes are not enough. The new law still wouldn’t provide any protection for those cohabiting and are not married or in a civil partnership. These couples do not have any rights to their home on the death of their partner. In this respect, the UK is way behind other countries.
Changing the law for cohabiting siblings in terms of IHT will raise questions as to where the line is drawn. Other platonic couples, eg 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.
If you would like to review your Inheritance Tax liability, do not hesitate to get in touch with us.