Lord Lexden
To ask Her Majesty’s Government what plans they have to extend fiscal and legal protection to close family members, particularly siblings, who live together long-term in jointly owned property.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, as the nature of relationships between married couples and those in civil partnerships is different from that of cohabiting siblings, the same legal and fiscal protections do not extend to the latter. The Government do not therefore intend to make changes at this time.
Lord Lexden (Con)
Why do the Government refuse to accept that those who live together permanently in platonic relationships, such as sibling couples, are no less deserving and in need of fiscal and legal safeguards than those who marry or become civil partners? Is it just or right that, among other hardships, many platonic family couples should have to endure the terrible anxiety created by the potential loss of the much loved and jointly owned family home because inheritance tax has to be paid when the first member of the couple dies and cannot be deferred until the death of the second? Did the Conservative manifesto not promise to take the family home out of tax?
Lord Bates
My noble friend makes a persuasive case. I appreciate the meeting we had in December, to which he also brought Catherine Utley. It persuaded me that this needed to be looked at again, and I therefore went to the Financial Secretary to the Treasury and asked him to do so. He looked at it again, and pointed out in his letter to my noble friend on 6 February, along with the Answer I gave to my noble friend’s Question, that if siblings order their affairs such that they jointly hold the asset, the charge would effectively become liable only on properties exceeding £650,000 in value. If they had difficulty in making that payment, inheritance tax could be made payable over 10 years. That was set against the fact that the average property price in the UK is £225,000. Those were the arguments put forward for retaining the position.
Lord Marks of Henley-on-Thames (LD)
My Lords, the noble Lord, Lord Lexden, has a strong point and he has long campaigned on it with great energy and skill. He highlights much unfairness to siblings and other blood relatives who share households. It is not only inheritance tax; there are fiscal disadvantages in a number of areas, and disadvantages in landlord and tenant intestacy. Do the Government agree that while there is not a case—and we agree with this—for equating siblings and other blood relatives with civil partners, there is nevertheless a strong case for a number of reforms? Will the Government agree to establish a cross-departmental working party to look at these issues and consider what specific measures are necessary to address these disadvantages?
Lord Bates
I am happy to do that. The standard response of all Treasury Ministers is to say that government policy in this area of tax is constantly under review. That has a particular meaning at the moment, because the Office of Tax Simplification is undertaking a review of inheritance tax. The issue of siblings will be within the scope of that. It is due to report in the spring, and we will take its findings seriously, but our position is clear—that this reflects an impact on a very small number of estates for which, with careful tax planning, much of the liability can be mitigated.
Baroness Deech (CB)
Does the Minister accept that there would be no loss to the Treasury because it would be only a question of rolling over the inheritance tax? Can he also explain exactly what it is about a short marriage or partnership of two years that would give its participants tax advantages not given to siblings living together for 50 or 60 years?
Lord Bates
There would be a tax consequence, because the spousal transfer in inheritance tax costs the Treasury some £2.5 billion per year. To extend the scope of that would involve a charge, and our judgment is that this case does not merit that.
Lord Forsyth of Drumlean (Con)
My Lords, given that the Financial Secretary to the Treasury has refused on four occasions to come to the Economic Affairs Committee and its sub-committee on the loan charge and shown himself unwilling to look at the evidence of hardship being caused, might my noble friend try lobbying the Chancellor on this matter instead? Could my noble friend acknowledge that this is not about avoiding inheritance tax? This is about people being able to continue to live in the family home. It is unjust. Is the Liberal Democrat policy not absurd—that the ability to live in the family home should depend on having a sexual relationship rather than a caring one?
Lord Bates
My noble friend makes his point. His point on the loan charge was debated here last night, when he and his representations were mentioned in dispatches by my noble friend Lord Wakeham. However, the point remains that we feel that there is a small number of cases. If a property is worth £1 million, and you divide it and take into account the personal thresholds of £325,000 times two, the liability on the death of one sibling will amount to some £70,000 in tax, which can be spread over 10 years.
Lord Davies of Oldham (Lab)
My Lords, I agree with a great deal of what the Minister has said. It is right that the Treasury should be concerned about the protection of inheritance tax. After all, avoidance of inheritance tax is basically a middle-class pastime in this country; any lawyer is likely to recommend that people should think about setting up a trust fund to avoid the consequences of certain aspects of the tax. We all have sympathy for the original Question and problem, but it is now, properly, with the Treasury, and I am glad that the Minister is taking the position that he is.
The Lord Bishop of Chester
My Lords, over the years, speakers from these Benches have completely supported the thrust behind the Question from the noble Lord, Lord Lexden. It is not only a matter for the Treasury and tax, but a matter of justice. If another party gets into power, perhaps the inheritance tax thresholds might even come down in due course—who knows? This does not seem a strong argument for denying an obvious need for justice in these cases.
Lord Bates
On the point of justice, that was tested, rightly, in the courts. The Burden sisters took their case to the European Court of Human Rights in 2008, and it did not find that there was discrimination against them in contrast to married couples when it came to inheritance tax. That was a clear decision. It is open to anybody else to challenge it through the courts, but our position is clear.