A bill which proposes amendments to the Inheritance Tax Act 1984 has been submitted to the House of Lords.
If successful, the bill — which had its first reading in the House of Lords this week — would make the transfer of property between siblings exempt from an IHT levy in certain circumstances.
Any brother, sister, half-sister or half-brother who has lived in the same property as the transferer continually for seven years up to the transfer of assets would qualify for an exemption under the new rules.
The recipient must also be over the age of 30.
Lord Lexden, the Conservative peer who put forward the private members’ bill, had previously attempted to allow siblings to enter a civil partnership arrangement to ensure siblings who cohabited in later life for company and assistance were not hit with a large tax bill when the first passed away.
Although this method was rejected — as it would give siblings in a partnership the same tax benefits and rights as a married couple — the recent amendments have the same aim.
Ian Dyall, technical manager at Tilney Financial Planning, said there were lots of people who opted to cohabit in later life for “all the right reasons” but the person left behind was often then forced to leave the home due to IHT costs.
He said: “Although not every pair who cohabit are siblings and therefore won’t benefit from the changes, this will be hugely helpful to those people it does affect.”
The bill will have to go through a second reading, committee stage, report stage and third reading in both the House of Lords and the House of Commons before it can become law.
Alan Chan, director at IFS Wealth and Pensions, said the siblings exemption would be a "nice addition".
He added: "Some may not have a spouse or children to pass on their family home to but instead may have close brothers and sisters with whom they’ve lived together and perhaps even providing care to them for a number of years. This proposal will help to provide them with some relief."
Rachael Griffin, tax and financial planning expert at Quilter, said: “There have been a number of high profile cases of siblings living together in later life for many years fighting to be afforded similar rights as spouses on death.
“This is a complex matter and people should not wait for policymakers to come to their rescue; they should take advice and plan early, using trusts and ensuring properties are held in the appropriate way.”
Assets and protection policies held in trusts are removed from an individual's estate and are therefore exempt from IHT.
A life insurance lump sum payout, within a trust, can mitigate an entire tax levy and leave some money available for funeral and probate costs.
Other ways to mitigate IHT costs include Aim shares — which are exempt after two years — or reducing an estate by gifting or spending before the seven year gifting limit.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
