Have you lived with your sibling for a long time and fear inheritance tax? New civil partnership rules won’t help, but a change may be coming
- Recent ruling on civil partnerships has thrown inheritance tax into the spotlight
- Government working on bill which could be beneficial for cohabiting siblings
A married couple and civil partners can pass assets to each other free of inheritance tax on death and effectively double up their tax-free allowance.
But that benefit does not exist for siblings who live together, meaning that some feel forced out of their home if its value is above the inheritance tax threshold.
New rules allow opposite sex couples to have a civil partnership, but siblings cannot do this. So what happens next? Here, Jacqueline Thomson, a senior manager at accountancy and business advisory firm BDO LLP, answers the key questions on this tricky topic.
Complex: Knowing how inheritance tax works for cohabiting siblings is difficult
What is the problem?
There are considerable tax advantages given to married couples or those in a civil partnership.
This includes large inheritance tax allowances and exemptions during lifetime and on death – in particular, complete exemption on the value of an estate which passes to a surviving spouse or civil partner (although this exemption is restricted to £325,000 for couples transferring estate from a UK-domiciled individual to a non-UK domiciled partner).
These exemptions do not apply to long-term cohabiting siblings. In their situation the lack of IHT allowances and exemptions has led to considerable difficulties in meeting inheritance bills on the death of one sibling, largely due to increases in the value of their home over many years.
Hasn’t this been the case for a long time?
Yes, the issue was highlighted over 10 years ago when sisters Joyce and Sybil Burden complained to the European Court of Human Rights that the difference between the treatment of spouses or civil partners and siblings was discriminatory.
However, because you do not sign a legally binding document as siblings, in 2008 the ECHR ruled that there was no discrimination as a siblings relationship is fundamentally different to a married or civil partnership couple.
Have any attempts been made to resolve the problem?
The House of Lords was in favour of including sibling couples when the UK introduced civil partnerships in 2004, but this was rejected by the House of Commons.
All change: A government Bill could pave the way for new rules on cohabiting siblings and inheritance tax
Currently, a Bill seeking to include sibling couples who have cohabited for 12 years in civil partnerships received its second reading in the House of Lords in July, and is awaiting examination at Committee stage.
Does everyone agree that extending civil partnerships for siblings is the answer?
Both sides in the House of Lords sympathise with those affected, but the sibling relationship is not one of choice and cannot be ended.
There is also concern that allowing siblings to have civil partnerships could lead to abuse and coercion.
For example, if one sibling wants to move out, and is coerced to stay to benefit from the perks of a civil partnership.
Questions have also been raised about potential unfairness to other relationships and the position for multiple siblings, as marriage and civil partnerships are strictly limited to two partners.
Any method of alleviating the problem would entail a cost, which would add to the cost of extending civil partnerships to opposite-sex couples.
As finances will also be stretched to meet the commitments to increase NHS funding and provide a reserve for Brexit uncertainties, this issue will join a list of other pressing matters that are competing for government resources.
During the second reading of the current Bill, Baroness Williams of Trafford, Minister for Equalities, echoed the argument that the sibling relationship is of a different nature to marriage and civil partnerships. She was not convinced that altering civil partnerships was the solution.