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New Clause 2

Treatment of siblings for purpose of inheritance tax

‘(1) Section 18 of IHTA 1984 is amended as follows.

(2) In each of subsections (1), (2) and (3) for “or civil partner” substitute “, civil partner or sibling”.

(3) After subsection (4) insert—

“(5) In this section “sibling” means a brother or sister with whom the transferor had lived in the same household for not less than ten years before the transfer.”.

(4) In the title for “or civil partners” substitute “, civil partners or siblings”.’.— [Mr. Frank Field.]

Brought up, and read the First time.

Mr. Frank Field: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss the following amendments: No. 1, in clause 8, page 3, line 29, leave out ‘and civil partners’ and insert ‘,civil partners and siblings’.

No. 2, in schedule 4, page 136, line 9, leave out ‘or civil partner’ and insert ‘,civil partner or sibling’.

No. 3, in page 136, line 11, at end insert—

‘(1A) In subsection (1) “sibling” means a brother or sister with whom the deceased person had lived in the same household for not less than ten years before the person’s death.’.

Mr. Field: I am grateful for this opportunity to move the new clause and speak to the amendments, but I will not be pressing them to a vote because I have learned that the Conservative Opposition are not going to vote on them tonight, although we have the votes to win. I do not think that it is fair on Labour Members to ask them to vote against their Government just for the sake of it, when we cannot win. So the message can go out clearly to the country that we might well have got change tonight—the Liberal Democrats and the nationalists were coming in with us—but sadly, the Opposition votes have crumbled. There is a case to answer, however, and I very much hope that the Economic Secretary will respond to the main points in the debate.

When historians write up the Labour Government, the two changes they will pick on as the most lasting are the ban on smoking and the establishment of civil partnerships. Both of them changed in a significant and good way the nature of our society, one because it used the law to set— [ Interruption. ] It is interesting that my hon. Friend the Member for Telford (David Wright) is laughing; we may be so hard pushed at the election that the Government may have to fight it on those measures,
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so it would be well worth listening. If my seat was marginal, I would be desperate to find some good messages to impart to the electorate. Let us return to the debate.

The law banning smoking has changed behaviour, and with civil partnerships we have rewarded the loyalty and faithfulness of couples of the same sex. When those measures went through we became a more civilised society on both fronts. The new clause would try to extend that approach for siblings who have made a home together, many of whom, as a result of the current duties paid on property at death, have to sell their home and start all over again. I did not table the new clause as a plea that such people should have special tax status or because they are siblings living together, they should be exempt from tax, but merely so that, as for married couples and those in civil partnerships, the tax would be delayed until the second sibling had died.

Of course, it is right that the Treasury should be worried when well-meaning souls try to move amendments that sound very good on the surface but could be used for tax avoidance purposes. That is why the new clause includes a requirement that siblings would have had to live together for at least 10 years before the provision would take effect. Clearly, given people’s ability to manoeuvre around the tax system, if there were no such bar, it would pay them to move in when they knew a sibling was dying. Nobody is in favour of that. We want to reward decent behaviour. Many siblings affected by the current arrangements would undertake civil partnerships if the law allowed them to do so, but it does not.

I ask Labour Members who oppose the proposal to think back to the time before civil partnerships. There were Members on the Labour Benches, and certainly some on the Conservative Benches, who thought that passing such an Act was against a law of nature, but once it was passed it was extraordinary how quickly people thought of it as a normal arrangement. One should reward such arrangements through the legal or tax systems, as would have occurred if there had been enough votes to support my proposal to give siblings the right to keep their family home until the second sibling dies. That is the point of the new clause, and I hope that I have explained its objectives.

I fear that a message will go out from the Chamber that there are not enough votes to carry the proposal, but I believe it will be carried before too long, and I look forward with interest to hearing what the Minister and the Conservative spokesman say. I think we may hear a slightly more progressive line from the Liberal Democrats. I commend the new clause to the House.

9 pm

Mr. Gauke: I congratulate the right hon. Member for Birkenhead (Mr. Field) on bringing about this debate and raising the issue of siblings and inheritance tax. As he has already suggested, we are not inclined to support the new clause. I shall explain why, but it is not because we do not appreciate the legitimate concern felt by many siblings who have lived together for a number of years. I suspect that he was most concerned about cases in which, as a result of the inheritance tax charge falling on the estate when one sibling died, it would be necessary for the surviving sibling to sell the property—the joint home. That is an understandable concern; our party, and, I suspect, Members of all parties, have a great deal of sympathy for people faced with those circumstances.

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The Economic Secretary to the Treasury (Kitty Ussher): Does the hon. Gentleman not agree that if, say, in 2010 the individual allowance were £350,000 per person, and two siblings jointly owned their house equally, the house would have to be worth more than £700,000 before inheritance tax even became an issue?

Mr. Gauke: Yes, I do agree with that. Indeed, to some extent, the Minister anticipates my argument. I will set out why, although we have sympathy with the case—from her tone, I am not sure that she shares that sympathy—the new clause is not necessarily the right way of addressing it. The proposal is not the way in which we would address the issue, but we would address it, none the less.

Mr. Jeremy Browne: As the hon. Gentleman acknowledges, the Minister is surely right that if the threshold were £350,000, the house in question would have to be worth £700,000. However, that would be just as true for a married couple, or a same-sex couple in a formalised partnership. The question that the Minister needs to answer—the hon. Gentleman may choose to put it to her in these terms—is: why should two women who have established a civil partnership be eligible for that relief, but not two sisters who choose to live together in a house worth more than £700,000?

Mr. Gauke: The hon. Gentleman makes a fair point, although I think that it will fall on both the Minister and Conservative Members to answer the question: why not treat siblings as a separate category, as we rightly do married couples and those in civil partnerships? Our concern has to do with the threshold, but what the Minister says is absolutely right. We are not talking about all siblings who live together; we are talking about those with a relatively large estate. However, equally, it would be fair to say that an estate of £700,000-plus is not necessarily that unusual, and we are not talking about only the very wealthy. That point is worth bearing in mind with regard to inheritance tax more generally.

As house prices have risen—not so much in recent months, but over the previous 12 to 15 years—many more estates are being affected by inheritance tax. That is a legitimate concern, and I congratulate the right hon. Member for Birkenhead on raising the issue. I certainly see that happening in my constituency: relatively modest houses are now above the inheritance tax threshold, so there is a legitimate concern. Of course, many people who do not have an estate above the threshold aspire to have such an estate. In many respects, because of the way in which inheritance tax has developed over recent years, it now affects far more families and people who hope one day to have an estate of that sort of size.

There is a legitimate problem with inheritance tax. The most prominent case is that of the sisters from Marlborough, Sybil and Joyce Burden, who have written to every Chancellor of the day since 1976—some eight Chancellors so far, although one suspects that the turnover may increase in the next couple of years or so. The sisters have also taken their case to the European Court of Human Rights, where their application was recently rejected. I think that our tax law should be determined by the conclusions of our debates about such matters in this House, not by the European Court of Human Rights in Strasbourg. None the less, the sisters have raised an important issue, particularly in the context of the surviving sibling having to move out to pay the IHT liability.

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I suspect that the Economic Secretary may make two arguments in that context: first, that it is possible to pay off IHT over a period of 10 years or so, and one can defer some of the liability; and secondly, that equity release is available. Some of the equity in the property can be released, but given that many people have saved all their lives to own a property outright, there is, unsurprisingly, a great reluctance to do what essentially is remortgaging part of it to fund a tax liability. My concern with the right hon. Gentleman’s proposal is about where precisely we draw the line. The line is currently clear with regard to married couples and civil partners, but what about, for example, long-term carers for elderly parents? The same case about protecting the family home could be made. What about adult disabled children who live with their parents? Again, a humane and reasonable case could be made for them. One is left with the question of where to draw the line.

Lynne Jones: If that is the case, why did the hon. Gentleman not consider tabling amendments that would have extended the provision to those groups? I do not think that we should have the provision at all; the money that has been spent on allowing the transfer would have been better spent elsewhere in the public sector, and particularly on free long-term care. The provision has been introduced, however, and people think it unfair that siblings and the other groups that he has mentioned should be excluded.

Mr. Gauke: I am grateful for that intervention, because it takes me on to the point that I was going to make. The reason why we do not support the new clause is that it is not bold enough. Instead, we propose a very simple way of addressing such concerns. I notice from the press reports about Sybil and Joyce Burden that their joint estate is estimated to be worth £900,000. Rather than provide additional exemptions for siblings and the other groups that I have mentioned, we propose simply to raise the inheritance tax threshold to £1 million. It would address the concerns of the vast majority of siblings who are affected, because we would be talking about a joint estate of £2 million. We would also be talking about the carers and the disabled adult children. Indeed, we would be talking more broadly.

Our proposal would address the essence of the right hon. Gentleman’s concerns, and although we have sympathy with what he is trying to do, a simpler way of dealing with siblings, the other groups that we have mentioned, many other families who have acquired a relatively modest home in a part of the country where house prices have risen considerably, and people who have saved and built up a substantial estate, is to take them out of inheritance tax altogether, so that it becomes a tax for the very wealthy—a tax on millionaires, not on fairly average families.

That is the policy that was announced at our party conference in October last year. It is clearly enormously popular, and it caused the Government to address the issue of inheritance tax in their autumn statement last year, when they announced the transferable nil-rate band. Like the right hon. Member for Birkenhead, the Government see that there is a problem with inheritance tax. However, if we want a Finance Bill that addresses those concerns, we may have to wait for a couple of years.

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Rob Marris: I understand why the new clause was tabled and I have some sympathy with the predicament that it raises. I should say in passing that the new clause may have a technical defect. I lived with my sister for 15 years, then I turned 18 and went to university. I do not know whether my right hon. Friend the Member for Birkenhead (Mr. Field) has been in such a position, but my point is that there are young people who live together as siblings for more than 10 years. However, that is not why I am speaking against my right hon. Friend’s new clause.

Last year, about 6 per cent. of estates—about 34,000 of them—paid inheritance tax. This year, because of the changes and the doubling up of husbands and wives and civil partners, it is predicted that about 4 per cent. of estates, or about 23,000 of them, will pay the tax. However, what is important is not just the absolute numbers but the principle of the issue. We need to start with how we got to this position.

One of my degrees is in sociology, and that colours how I approach this issue. In most societies, inheritance sprang up to bolster the family and pass property to children—think of peasants and the issues in different European countries about whether there is primogeniture and so on. Our inheritance tax is part of a historical follow-through of that in respect of fostering family life. That is why there are exemptions between husbands and wives and now, quite properly—as highlighted by my right hon. Friend the Member for Birkenhead—between civil partners. That is a welcome step forward, as it is to do with a relationship that, historically, most societies sought to bolster to a greater or lesser extent because of the involvement of children.

Some civil partners have children and some do not; that takes us back to the debate on the Human Fertilisation and Embryology Bill, which we will not go into here. However, a lot of that debate revolved around the provision of a social unit that had adequate means of providing a stable environment for the children. That was particularly significant historically—a man might have been killed in the war and left a widow with young children, for example. For me, that is the historical background and how we have got where we are.

Mr. Frank Field: On the historical background, I should say that the prayer book originally said that the purpose of marriage was to beget children. A more modern version says that it is for couples to form relationships. I am looking forward to the next stage of my hon. Friend’s speech.

Rob Marris: It is to do with encouraging stable relationships. Historically, although not so much today, that issue revolved around children, whether in respect of procreation or the change in the wording that we now have. The same imperative does not apply to siblings. I stand to be corrected, but I take it that when we are talking about siblings in this context, we generally mean blood siblings or, because of the 10-year thing, foster siblings who have had a long-standing relationship. We are generally thinking of older people who have chosen to live together, such as Sybil and Joyce Burden. There is not the same social imperative to have a tax regime to bolster that kind of relationship, desirable as it may be for people to live in stable relationships.

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9.15 pm

As the hon. Member for South-West Hertfordshire (Mr. Gauke) said, we have to ask where we draw the line. Do we take it to cousins—blood relatives who have chosen to live under the same roof together for many years and do so until one of them dies? Do we take it to people who are best friends, albeit platonic? Carers have been mentioned. My initial reaction is that we might like to consider including those who care for elderly parents, because I regard it as desirable to encourage adult offspring to do that. However, when one of the parents died, if they were married or in a civil partnership the property would pass with no inheritance tax to the surviving parent, who would probably still need looking after. When the second parent died, it would not seem quite the same, although it could appear that way to the carer, who would then have to move out of what they regarded as their family home.

My right hon. Friend the Member for Birkenhead mentioned deferred tax. As I understand it, it is not just a question of that. We are talking about exemptions, as we have seen with the provisions introduced in the Bill on retrospective transferable allowances between spouses. I declare an indirect interest in that my mother, who has been widowed for 19 years, inherited the whole estate without paying inheritance tax, and that doubling up will affect what she passes on to her children. It is not just a question of deferred tax but of less tax being paid. The mere fact that less tax is paid is not a reason to walk away from something if the principle is right, but I am not sure that it is. The 10-year transition period to which the hon. Member for South-West Hertfordshire referred is an option that could be used. However, I am not so sure about equity release schemes, which are not necessarily something that we want to encourage. Although there can be good schemes offered by reputable financial institutions, there are a lot of horror stories about sharks.

Mr. Gauke: I do not disagree with what the hon. Gentleman is saying. I merely wished to highlight some of the arguments, the most persuasive of which is the one about where we would draw the line.

Rob Marris: I agree with the general proposition put forward by my right hon. Friend the Member for Birkenhead about rewarding decent behaviour, but that gets us into the question of where we draw the line and how much state support there is for that.

I would say to my hon. Friend the Economic Secretary that we should consider a form of deferral of inheritance tax. There is the classic example of two sisters who have lived together all their lives, or for the last 30 years of their lives. One is aged 80 and one is aged 70, and the 80-year-old dies. The 70-year-old might live for another 20 years, beyond the 10-year paying-off period for inheritance tax, and have to move out of a home that in some cases will have been the parents’ home. At the time that her 80-year-old sister dies, the 70-year-old might have lived in the house for 70 years and fully expect to live there for the rest of her life but be faced with an inheritance tax bill because house prices have gone up. That will involve only a small number of people, but we are looking at
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the principles. There could be some tax deferral mechanism so that when the younger sister dies 20 years later, that is when the house is sold and the inheritance tax becomes payable, albeit perhaps with interest rolled up over that 20-year-period. It would be similar to the transitional arrangements for people who go into care and are selling their houses for that reason. We need to think about slightly more creative mechanisms to adapt to the ways in which people live.

Lynne Jones: Why should not those arrangements also apply to married couples?

Rob Marris: They could apply to married couples, but there is a social imperative, to which I referred in a sort of pop sociology way, in the context of why society does what it does, and its being comfortable with what it does. In the case that we are considering, and in trying to square the circle, I am content with the exemption for spouses and civil partners. Perhaps it would be best to have an open-ended period—things depend on the age difference between the siblings, the health of the older one, the one who dies first, and so on—but it could be up to 30 years, in which the inheritance tax bill is deferred until the second sibling dies or sells the house, perhaps to move into a sheltered bungalow.

I urge my right hon. and hon. Friends on the Treasury Bench—I imagine that they will not accept the amendments—to consider some alternative arrangements to lessen the pressure on siblings such as Sibyl and Joyce Burden, but not to change the basic idea that exemptions apply to spouses and civil partners.

Mr. Jeremy Browne: I wish to draw on a personal experience, which, although not directly relevant, is sufficiently relevant to illuminate our debate. My grandmother, who married Mr. Browne, was called Miss Gray—we are a rather monotone family. She was the oldest of four children and she died in 2000 in the house in which she was born in 1913. There were four children—two boys and two girls. Both sons were killed in the second world war and their names are on the war memorial in the church near the house, and my grandmother and her younger sister, my great aunt, survived. They continued to live in the house in which they were born until the day that they died. My great aunt died more recently.

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