Siblings that live together may soon be exempt from inheritance tax

Siblings living together are liable to pay the standard IHT rate of 40% of anything in over the £325,000 threshold.

Financial planning January 23, 2020 by Tom Bailey

The House of Lords is considering a change to the law which would exempt siblings who live together from paying inheritance tax (IHT) on property left to each other.  

A bill introduced by Conservative peer Lord Lexden has called for the change in the law.

Currently, just those who are married or registered civil partners do not have to pay any IHT on money or property left to them by their spouse.

Lexden’s bill would apply to siblings that have lived together for at least seven years, with the surviving sibling being over 30.

Those protected from IHT expanded at the end of 2019, with the introduction of heterosexual civil partnerships.

Siblings living together, however, are still liable to pay the standard IHT rate of 40% of anything in over the £325,000 threshold. Lexden has labelled this “the worst injustice”.

The issue has received increased attention following the case of Catherine and Virginia Utley.

The two sisters have lived together for 30 years. However, when one of them dies the surviving sister will be forced to sell the house they currently live in, in Clapham, to pay IHT estimated to be £140,000.

Kelly Greig, head of later life planning at Irwin Mitchell, however, argues that the move does not go far enough to “protect” those cohabiting but not married or in a civil partnership.

She says: “While I’m sure cohabiting siblings will be pleased at the news that this is a priority in parliament, the bill only goes so far to address the much bigger issue of the lack of legal protection for cohabiting couples.

“There are also plenty of other platonic cohabiting households that will want to be recognised as well such as parents and children, or friends who own property together. There is a big question over where exactly the line is drawn and whether the new rules will be open to abuse.”

A recent report by UHY International, an international accountancy network, found that the UK currently has one of the least generous IHT regimes in Europe.

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