Inheritance Tax: Burden Sisters Denied Relief
Sisters Joyce and Sybil Burden have lost their battle to have the same inheritance tax rights as civil partners.
The Burdens had argued that their situation was analogous to a same-sex couple living together. Therefore they should enjoy the same right to pass wealth to each other free from inheritance tax in unlimited amounts.
In the absence of such rights, the sisters argued that their rights under the European Convention on Human Rights had been breached. Specifically they argued that they had been discriminated against because they were not a same sex couple and that their right to ‘protection of property’ had also been breached.
The Grand Chamber of the European Court in Strasbourg today held on a 15-2 majority that the Burden’s rights had not been breached. The judges upheld the right of European member states to exercise some discretion when deciding taxation agreements.
This means that when the first sister dies, the survivor will need to find a way to fund inheritance tax payments so that they can stay in the family home which has been reported as worth £850,000.
Assuming the sisters, who are currently aged 82 and 90, have no other assets, then the inheritance tax bill on half of the house if one of them were to pass away this tax year will be 40% of the excess over £312,000 – which is £45,200. A significant sum to find for most pensioners.
The government can then look forward to receiving a further inheritance tax payment when the second sister dies as there is a good chance that the same property will be taxed on the death of each sister.
There are alternatives available to the Burdens; they could arrange an equity release mortgage which would enable them to stay in their home during their lifetimes. This would certainly give them some scope to pass on wealth to either each other or the next generation either through the use of trusts or some of the packaged products such as discounted gift schemes available.
The disadvantage of this is that this can be an expensive way of borrowing money and could end up with the revenue and the equity release company receiving a large proportion of the value of the property when the second sister dies.
There are other possibilities for inheritance tax planning; the siblings could give a share of their house to a relative and hope to live for seven years from the date of the gift. Again, this has advantages and disadvantages – not least that the relative could sell the house if a dispute arose. Bearing in mind the relative ages of the Burdens, it may be an unpalatable gamble to take.
The sisters could gift their estates to charity; again this would mean that their estates passed free of tax but it may not be what the sisters want. The charity trustees could also find itself in a difficult position when it comes to complying with their legal duties in relation to the charity’s assets.
Other more complex schemes could be explored, but as with all inheritance tax planning, time is of the essence. If the Burdens have hung all their hopes on winning their case, then a fall in the property market may be their best hope.
Tamara Richardson is a solicitor specialising in wills and estate planning and is head of the Living Together team at Foot Anstey Solicitors.
Published 29/04/2008
