Inheritance tax and the forgotten family unit
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 situations it is important to seek professional advice from one of Butcher & Barlow’s specialist Private Client lawyers. The team can advise on a number of options for those who may not be assisted by the current reliefs.
Life Time Property Trust
The sibling who either has been left or owns the property can, in their Will, create a trust so that in the event of them predeceasing their sibling that sibling can remain in the property. Such right to occupy is often subject to conditions such as paying all out goings, insuring and maintaining until such time as the surviving sibling no longer requires the property or upon their death. This ensures security for both siblings.
Gift of Property
The sibling who has been left or owns the property could consider transferring the property into the joint names of themselves and their sibling, either as joint tenants in equity thus ensuring the property passes automatically to the surviving sibling upon death or as joint tenants in common (creating a trust as above) and thus reducing the value of the property owning siblings estate.
Gift of Assets
If the issue for IHT liability is cash assets rather than property, a lifetime gift could be made into a family trust from which both siblings are able to draw income (and in certain cases capital) which defers the IHT liability until the death of the surviving sibling and the winding up of the trust.
This is an overview of just some of the options available. Every case is individual and our specialist team will provide a tailored solution dependent upon each personal circumstance or need, working with your accountant and or financial advisor as required.
Do not put off contacting us if you want to discuss any aspect of your personal affairs. Although we remain working remotely for the time being, our team of experts can still provide you with the advice and guidance you may need. Please do not hesitate to get in touch via email@example.com or email your legal adviser directly.
Mike can be contacted on email at firstname.lastname@example.org or by phone on 07768 512997.
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