Amy Thomas, Watkins & Gunn, considers a potential new rule that could help to reduce inheritance tax bills for siblings.

The current position

Currently, spouses and civil partners are not subject to IHT on the first spouse or civil partner’s death, provided they leave everything to their surviving spouse or civil partner. As each individual has an IHT allowance of £325,000, spouses or civil partners currently have a threshold of £650,000 (£325,000 x 2) upon the second spouse or civil partner death. Generally speaking, anything over that amount may be subject to IHT of 40%.

However, with regard to unmarried siblings who reside together, under the current IHT provisions, anything they own at the date of their death that exceeds the individual IHT allowance of £325,000 would be subject to the usual IHT rate of 40%.

Proposed changes

The Inheritance Tax (IHT) that siblings who live together pay upon the first sibling’s death, could be set to change. A bill introduced to Parliament by Conservative peer Lord Lexden would make transfers between siblings who live together exempt in certain circumstances, in a similar way as currently exists between married couples and civil partners.

Many people may not have a spouse or children, but instead may have close brothers and sisters with whom they have lived together and perhaps even provided care to them for a number of years. Lord Lexden believes his proposal will help to tackle the “worst injustice” that cohabiting sibling currently face, which is the potential loss of the shared home when one of them dies because IHT has to be paid by the survivor.

If the sibling exemption were to come into force, then co-habiting brothers, sisters, half brothers and half sisters would be treated the same as spouses and civil partners. To qualify for the exemption certain criteria would need to apply to the siblings. It is currently proposed that provided siblings had lived together for at least seven years and the surviving sibling was over the age of 30, that the exemption would apply and therefore no tax would be paid on the first sibling’s death.

The bill will need to be debated in the House of Lords and thereafter the House of Commons before it would come into force and it currently unclear, when, if at all, that would be as no timeframe has yet been set for this to happen. 

Amy Thomas is a solicitor in the Private Client Department at Watkins and Gunn. For more information call 01495 768 935, e mail info@watkinsandgunn.co.uk or simply text “legal will” to 67777.

This article is for general information purposes only and does not constitute legal or professional advice.