Currently, in England and Wales only those who are married or civil partners do not have any inheritance tax to pay on assets left to them by their spouse.
Any other class of people who live together do not enjoy the same inheritance rights and can potentially see an inheritance tax bill of 40% of anything over the £325,000 nil rate band threshold.
Proposed IHT Changes
Following the case of Catherine and Virginia Utley, where two sisters who have lived together for over 30 years were facing an inheritance tax bill of £140,000, the House of Lords have proposed to extend the inheritance tax exemption to siblings over the age of 30 years old who live together and have been for at least 7 years prior to the date of the first death.
Will these changes be automatically applied to a Will?
These proposed changes are certainly positive for those effected, but we at Cunningtons would advise not to rely on this as a reason for not having your Will drafted, as depending on how you and your sibling own the property your share may not automatically pass to them upon your death.
It is, therefore, increasingly important that your Will is drafted by a qualified solicitor.
My brother and I, both in our 70s, have always lived together. The family home now belongs to us equally and is worth well over 650,000, bought by my parents for 10,000 in 1966. We have little by way of cash and would be forced to sell on the death of one of us. There would be two ways of solving this….
1. Increase the threshold at least by the rate of property inflation. 325,000 would get you nothing round my way.
2. Allow civil partnership for tax reasons.
There is no other family, eventually what’s left goes to charity.
Thank you for your comment.
There was the case of the Burden sisters who had a similar issue and took this to the European Court but the Court ruled against them so there is no exemption for the purposes of Inheritance Tax between siblings that co-own their own home.
Where, say, one sibling owns half of the property and this one half share exceeds their tax inheritance tax allowance then inheritance tax will need to be paid. There is an exemption in that the personal representative of the first to die can claim a discount, usually 10%, on the value of the half share of the property for the purposes of inheritance tax, on the basis that that half share would not be sellable on the open market and therefore the value should be discounted. This is not given and would need to be claimed from HMRC.
It would be possible to put half of the property into a discretionary trust on the first death to avoid the whole value of the property falling within the survivor’s estate for the purposes of inheritance tax. This would mean that on the second death the value of the property (to include any inflation on it from the date of the first death to the date of the second death) in that Trust would not be taxed on the second death. This would avoid the share (to include any inflation on it from the first to the second death) of the first person to die being taxed twice e.g. taxed on the first death and then again on the second death.
If this is something that you wish to consider then it would be important to check how the property is co-owned as it should ideally be owned as Tenants in Common and not as Joint Tenants.
It would also be important to check that any Wills are up to date or if there are no other Wills in place, and to consider the benefits of Lasting Powers of Attorney to ensure that you are fully protected.
Please contact our Wills and Probate team for any further assistance.
3 brothers. Each will receive £17000 inheritance. What tax do they pay please
Thank you for your enquiry.
Inheritance tax is assessed on the deceased’s assets as at the date of their death, which includes any assets passing by way of survivorship, assets held in trust and any gifts or transfers of value made within the seven years immediately prior to death. Everyone is entitled to a tax free allowance, known as the nil rate band of £325,000, if the deceased leaves a property to their direct descendants their Executors can claim an additional tax free allowance known as a residence nil rate band of £175,000.000, if the deceased was a surviving spouse or civil partner who inherited the whole or any part of their spouse or civil partner’s estate then their executor can make a claim to use their spouse or civil partner’s unused Tax is usually charged at 40% of anything over the tax free allowances however it may be charged at the lower rate of 36% if 10% or more of the estate passes to charity.
If you require any specific advise please contact a member of our Private Client team on 01376 567280.