Call to defer inheritance tax payments

The Government could come to the aid of two elderly sisters who face crippling inheritance tax on their home when one of them dies by allowing for payment to be deferred.

That is the view of solicitor Emma Satterly, a tax compliance expert here at Hewitsons following a recent decision by the European Court of Human Rights to reject an appeal from Joyce and Sybil Burden - that they faced unfair discrimination under the UK's inheritance tax rules.

Joyce, 90, and Sybil, 82, who have lived together all their lives to care for their parents and two aunts, have been fighting for more than 30 years to avoid hefty inheritance tax on their £900,000 home when one of them dies. The sisters claimed tax laws breached their human rights by exempting married and gay couples from paying inheritance tax, but not cohabiting siblings.

But the Grand Chamber of the European Court of Human Rights upheld an earlier ruling that national governments were entitled to some discretion when deciding taxation arrangements.

Commenting on the case, Emma said: "The situation the Burden sisters find themselves in is mirrored all over the country and while it would be helpful if the Government introduced legislation which allowed for inheritance tax on a property which is someone's home to be deferred until their death there are other ways to tackle the problem.

"Although Joyce and Sybil Burden are sisters they share the same problem as other people who cohabit but do not marry or enter into a civil partnership. When one of them dies inheritance tax is payable at 40% of the value of their estate in excess of £312,000. If the only asset is the house and the deceased's share is worth more than this, the survivor has to pay tax to continue living in their home.

"The initial reaction to this is to assume that the house will have to be sold to pay the tax but this is not necessarily the case. The inheritance tax legislation recognises that the tax payer may not want or be able to sell the house so while it is unsold it is possible to pay the inheritance tax in 10 annual installments.

"If the survivor is an older person, which will be the case with the Burden sisters, the money to pay the tax could be raised by an equity release scheme. The repayment of the debt could be deferred until the survivor's death or sale of the house. Of course there is a commercial cost to this which would have to be compared to the interest charged on the outstanding installments of tax. The amount of the liability under the equity release would reduce the size of the survivor's estate for inheritance tax purposes.

"For younger people insurance may provide a cheap way of providing the funds to pay any inheritance tax. The difficulty with this is that it depends on correctly predicting the value of the house when the first person dies and also the tax rates prevailing then. The life insurance policy has to be written in trust for the benefit of the person who will inherit the house so that they receive the funds to pay the tax."

If you would like advice on any Inheritance Tax related matter, Emma would welcome the opportunity to hear from you. You call her at our Cambridge office on 01223 461155 or you can simply email her.