Philip Hammond's Tax Review could be a boon to cohabiting 'sibling couples', writes Rebecca Waterhouse
In a letter to the Office of Tax Simplification, Phillip Hammond had instructed government to review the current UK inheritance tax (IHT) system, saying that the IHT system was 'particularly complex' and that the review should focus on technical issues around gift rules. A review of the current IHT system may be welcomed by many, particularly those who feel that the benefits afforded to married couples and civil partners should also be extended in other circumstances.
Under the current regime, all gifts and transfers made between spouses and civil partners are exempt from IHT. Spouses and civil partners also benefit from the ability to 'transfer' any unused proportion of their nil rate band (the amount of an individual's estate on which tax is charged at a rate of 0%, currently set at £325,000) to their surviving spouse or civil partner on their death. This means that a married couple, or a couple in a civil partnership, are able to arrange succession to their assets to defer tax such that there is no charge to IHT on the first death and the surviving spouse/civil partner potentially has a nil rate band of £650,000 available to them (potentially rising to 1 million to include main residence exemption). In many cases, this means that the surviving spouse/civil partner is able to continue living in the couple's family home where they may otherwise need to sell the property to meet an IHT bill.
In recent years debate has questioned whether the reliefs could be amended to benefit a wider class of individuals, who are unmarried. In particular, there has been pressure for the government to recognise 'sibling couples' – that is siblings who co-habit and share finances and ownership of their home. It has previously been suggested that a definition of 'siblings couples' could be introduced such that sibling couples could apply to be registered as civil partners and therefore benefit from the succession and tax protections currently only afforded to married couples and same-sex partners. An amendment to the Civil Partnership Act to permit 'sibling couples' (which are defined as two persons who are considered to be siblings (being a brother, sister, half-brother or half-sister) both of whom are aged over thirty years, who have lived together for a continuous period of twelve years) to register as civil partners is awaiting its second reading in parliament.
As the government has announced its intention to conduct a review on the possibility of making Civil Partnerships available to individuals other than same-sex couples, relief from IHT could be extended to benefit an even wider class and may relieve the perceived injustice of a surviving unmarried partner (or sibling) being forced to sell the home that they have co-habited in with the deceased during their lifetime in order to pay an IHT liability that they otherwise could not afford.
The benefits for civil partners and spouses also extend beyond relief from and deferral of IHT tax. Capital gains tax is not charged on gifts between spouses and civil partners. Additionally succession on intestacy, if an individual dies without a Will, recognises the rights of civil partners and spouses above the rights of family members and unmarried partners. At a time where more people than ever before are living and purchasing homes together with persons other than a spouse or civil partner, it seems sensible to consider how succession and tax protections that are currently the preserve of the historic 'norm' could be extended beyond their usual application to adapt to a changing society.
Rebecca Waterhouse is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP