The Proposal: Inheritance Tax Exemptions For Transfers Between Siblings
Lord Lexden, a Conservative peer in the House of Lords has sponsored a Bill (cited as the Inheritance Tax Act 1984 (Amendment) (Siblings) Act 2020) that amends existing legislation to make certain transfers between siblings exempt from inheritance tax.
If the Bill is approved, siblings will be exempt from any inheritance tax on any gifts made between them, either in their lifetime or on their death, providing they have lived in the same household for a continuous period of seven years, and the sibling who receives the property is at least 30 years of age. For the purposes of the Bill, “sibling” means a brother, sister, half-brother or half-sister.
Inheritance tax exemptions currently extend to charities and to those who are married or in a civil partnership. This Bill is therefore an attempt to treat cohabiting siblings fairly and to avoid situations whereby a person is forced to sell their home to pay inheritance tax on the death of their brother or sister.
Existing legislation – cohabiting siblings
Joe Bloggs and John Smith are brothers who jointly own and live in a property valued at £800,000 which they inherited from their parents. Joe and John are both property rich but cash and income poor and neither have savings or investments of significant value.
Joe dies and leaves his whole estate to John. Under existing legislation, there will be an inheritance tax liability of £30,000. When John later dies, there will be a further inheritance tax liability of up to £190,000.
This is a total of £220,000 paid in inheritance tax.
Existing legislation – spouses or civil partners
Joe Bloggs and John Smith are spouses who jointly own a property valued at £800,000. Again, Joe and John are both property rich but cash and income poor and neither have savings or investments of significant value.
Joe dies and leaves his whole estate to John. Under existing legislation, there will be no inheritance tax to pay in the first instance. When John later dies, there will be an inheritance tax liability of £60,000.
The inheritance tax treatment of siblings and unmarried co-habiting couples is hugely imbalanced and campaigners have long called for the position to be reviewed. The Utley sisters even went so far as to fight for the right to enter into a civil partnership so they can enjoy the same inheritance rights.
The first reading of the Private Members’ Bill took place on 14 January 2020 however the date of the second reading is yet to be announced. It therefore remains to be seen whether this Bill will succeed through the committee stage, report stage and third reading of the House of Lords before being heard in the House of Commons.
Forethought is essential when estate planning and seeking inheritance tax advice. UK tax is a complex area of law and individuals should always obtain regular advice from professionals in light of their changing personal or financial circumstances and changes to legislation. A solicitor will be able to discuss various options available to you to reduce your inheritance tax liability.