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How A New Law Can Save You A Fortune In Inheritance Tax

Gary Green
Gary Green
January 20, 2020

Every year UK families face rising inheritance tax bills. In today's article, we'll explain how a new law could save you a fortune.

Inheritance tax receipts have risen every year this decade. In the 2018-2019 tax year, UK families paid out a whopping £5.4b to the tax man.

Married couples have always been able to offset some of the tax liability (we covered some of the ways in our article on how to simplify your inheritance tax paperwork).

But a proposed new law may allow other "couples " to gain similar tax benefits.

Married Couples, Civil Partnerships And IHT

Married couples can currently take advantage of IHT tax breaks when one of them dies. You are allowed to pass your assets to your husband or wife tax-free.

This, in effect, doubles your allowance.

It also means that the surviving member of a married couple will never be forced to sell the shared home because of an IHT bill.

This law also applies to civil partnerships. Same sex and opposite sex civil partners can utilise the same IHT protection when one of them dies.

Siblings And IHT

Unfortunately for cohabiting siblings, the current IHT laws do not apply in their case. If, for example, two sisters live together and one of them dies, the surviving sister would have to pay IHT on the value of their home.

In cases when the price of the home has risen significantly since purchase, this can even result in needing to sell the house to pay the bill.

Cohabiting siblings have been challenging the unfairness of this situation for years. In 2008, sisters Joyce and Sybil Burden complained to the European Court of Human Rights that they were being discriminated against (compared to how they would be treated if they were married).

Back then, the ECHR ruled that they had no case. Siblings (unlike married couples) don't sign a legal document. Hence, they are not allowed to pass assets tax-free.

A New Law?

MPs and members of the House of Lords have been considering the situation for the last few years. Finally, it seems, there might be some hope for cohabiting siblings.

Lord Lexden introduced a bill last week that would allow the tax breaks on death duties to extend to siblings. Some people have pushed for an even more sweeping change, which would allow siblings to actually enter into civil partnerships with each other.

Not everyone is in favour. Some of the arguments against the bill:

  • It could lead to coercion, eg if one sibling wanted to move out but was pressured to stay for tax purposes.
  • It could be seen as unfair to other siblings in the family who don't happen to live in the shared home.
  • Unlike marriages or civil partnerships, sibling relationships are not legal arrangements and cannot be "ended".

We'll certainly be keeping an eye on the progress of the bill. Whatever happens, we'll keep you informed and up to date. If there are any new ways to streamline or minimise your inheritance tax situation, you'll read about them here!

If you think you might be affected by anything discussed in this article, and you'd like to talk to one of our tax experts, please get in touch.

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