• Catherine Utley

Tax review draws attention to difficulties faced by cohabiting family members

July 17 2019

Catherine (left) and Virginia Utley of Family Ties Matter

The difficulties faced by elderly siblings who live together for decades but are unable to pass their property, one to the other, on death because of inheritance tax, have been highlighted in a report by the Office of Tax Simplification (OTS). The government-commissioned report, the result of a public consultation on the workings of the tax, makes two mentions of the issue, but does not make any recommendations about how it should be addressed.

In the first mention, the report discusses whether the "spousal" exemption of inheritance tax, currently applicable only to married couples and civil partners, should be widened to include long term cohabiting siblings. On this the report concludes: "The OTS considers that any change to the definition of spouse to include a cohabiting partner or sibling would be far reaching. This would most naturally form part of a wider response to social change considered across government rather than being driven primarily by Inheritance Tax considerations.”

The second mention comes in the report's discussion of the new "residence nil rate band" which raises the inheritance tax threshold for those leaving a property to direct offspring, but, again, excludes cohabiting siblings. The report says the residence nil rate band was the most common topic of correspondence in the consultation, with strong feelings expressed by both professionals and ordinary members of the public that the current rules place three groups of people at a disadvantage: those who cannot or do not have children, elderly siblings who live together for many years and want to pass their home one to the other, and those who do not own property. The report includes the following quotation from a member of the public:

“I understand recent changes have allowed greater exemptions to apply to direct descendants which discriminates against those of us without children...I also feel that it discriminates against siblings. My identical twin sister and I are now 62 years old and have worked incredibly hard all our lives in order to live in a beautiful house of our dreams. If something happens to one or the other of us...then the remaining sister would be forced to sell the property in order to fund major Inheritance Tax on the house…” 

Referring to the quotation, the OTS report concludes: " These points challenge the underlying policy rather than simplification as such, and addressing them could have a significant Exchequer cost"...

Catherine Utley of Family Ties Matter said: "The OTS report is very disappointing but hardly surprising. For years successive governments have acknowledged the unfairness of bereaved survivors of platonic cohabiting partnerships being forced out of their homes by inheritance tax, but they have always said that the way to solve it should be by reform of tax rules rather than by allowing the sort of legal recognition of platonic relationships that civil partnerships provide for sexual ones. Then, when ways of addressing the problem through changing inheritance tax rules are suggested, we are told that it is not a matter which should be driven by inheritance tax considerations, because it belongs as part of a wider consideration of the State's response to social change. All we can hope for now is that a new government grasps this nettle and acts to end the absurd and scandalous situation where close family members who choose to live together for companionship or to provide care, one for the other in old age, are singled out for punishment by the State for doing so. Why, should living together (now in or out of marriage) only be considered acceptable by the government if it is presumed to involve sex?"

The OTS review of inheritance tax can be read in full here