Inheritance Tax And The Forgotten Family Unit

• Published date: 29 June 2020
• Subject Matter: Real Estate and Construction, Tax, Construction & Planning, Inheritance Tax
• Law Firm: Butcher & Barlow
• Author: Mr Michael Bracegirdle

The Civil Partnerships, Marriages and Deaths Act 2019 came in to force at the end of 2019. It gave heterosexual couples the right chose to have a civil partnership instead of a marriage. Mike Bracegirdle, who specialises in Succession Planning and IHT mitigation, explains why not all family units were helped by this Act.

Whilst couples marry for their own personal reasons, a legal commitment to another person either through marriage or a civil partnership ensures that there will be no IHT to pay on the death of the first spouse provided they have executed a valid Will leaving all their assets to the surviving spouse or civil partner.

Since 2007, the first spouse's Nil Rate Band, which is currently 325k, can be carried forward to the surviving spouse's estate, giving a total nil rate band allowance of 650k on the death of the second spouse.

This was supplemented by the Residence Nil Rate Band (again transferable between spouses) and the rather complex downsizing relief.

As a result of the 2004 Civil Partnership Act and the aforementioned 2019 Act couples no longer have to rely on being married to benefit from these reliefs and can enter into a civil partnership instead.

One would assume this covers all possible family units but this is not so. There are couples and family units who cannot marry or enter into a civil partnership and who therefore cannot benefit from any IHT reliefs or allowances, for example;

• Siblings who have shared a home often for a lifetime; and
• Children who are left orphaned following the untimely death of their parents.

Both scenarios are more common than is sometimes thought and can lead to tragic consequences. We recently acted in an estate where two sisters had lived together for many years. When the home owning sister died, she left her surviving sister the property and her financial estate which came with a substantial IHT liability. The house had to be sold to pay the tax, leaving the surviving sister to move in to a new home in her later years. This is not fair or equitable.

Until parliament reviews IHT again this situation remains unaddressed.

If you find yourself in either of these...