Finance Bill - Treatment of siblings for purposes of inheritance tax

David Gauke addresses a proposed clause to extend the inheritance tax rights given to civil partners to siblings. 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.

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 personally 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.

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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DAVID'S OTHER CONTRIBUTIONS TO THE DEBATE

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.

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Mr. Gauke: If inheritance tax affects only a tiny or very small minority-I do not know what phrase the Economic Secretary would use-can she explain why the centrepiece of the pre-Budget report, which was after all prepared at a time when the Prime Minister was considering going to the country, was changes in inheritance tax?

Kitty Ussher: The hon. Gentleman completely misses the point. Our proposals related to what happens when property is passed down to children. That is not what we are discussing today. We are discussing whether the second sibling should be forced to leave the house. Of course, it has always been the case that no inheritance tax is paid when one spouse passes their part over to the other spouse.

Mr. Gauke: I fully accept that the amendment relates to siblings, but as the Economic Secretary raises the point about inheritance tax being an issue only for the very wealthy, can she explain why the centrepiece of the Government's pre-Budget report last October, in the run-up to a potential general election, was changes to inheritance tax?

Kitty Ussher: I repeat that the hon. Gentleman misses the point. First, we raised the threshold up to £350,000 from 2010-11, and made the commitment that it will continue to rise with inflation, including house price inflation. Secondly, we made it absolutely clear that the zero relief could be transferred when the second parent died. As I said, that is a different point.

The interesting thing that came out of the discussion on the pre-Budget report, as the hon. Gentleman has just confirmed, is that the Conservatives would raise the limit to £1 million. I am absolutely clear that that is not a good use of taxpayers' resources. I am not sure where he would find the money to pay for it. Effectively, the proposal would take at least £1 billion and give it to people whose assets already make them millionaires. When a certain amount of public money is available, it is right to spend it on something that benefits genuinely average families, not millionaire estates as he proposes.

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Mr. Gauke: My I endorse what was said by the hon. Member for Wolverhampton, South-West (Rob Marris)? We raised the point in Committee, and he is absolutely right. I know that the Government's proposals date back to some years ago, but it is the case that if the first spouse died before either 1974 or 1972, he or she will not benefit from the nil rate band. We urge the Government to reconsider.

Kitty Ussher: I do not know whether that is yet another example of an unfunded spending commitment from the Conservatives, but we felt that 35 years was a fairly decent point at which to draw the line.

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