New Clause 2 — Treatment of siblings for purpose of inheritance tax

Orders of the Day – in the House of Commons at 8:15 pm on 1 July 2008.

Alert me about debates like this

'(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.

Photo of Frank Field Frank Field Labour, Birkenhead

I beg to move, That the clause be read a Second time.

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

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.'.

Photo of Frank Field Frank Field Labour, Birkenhead

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 David Wright is laughing; we may be so hard pushed at the election that the Government may have to fight it on those measures, 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.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 9:00, 1 July 2008

I congratulate 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.

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

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?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

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?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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.

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.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

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.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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.

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

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 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.

Photo of Frank Field Frank Field Labour, Birkenhead

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.

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

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.

As 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.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 9:15, 1 July 2008

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.

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

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 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.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

Why should not those arrangements also apply to married couples?

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

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.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

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.

My grandmother married Mr. Browne and that is why the example is not directly applicable. However, I wanted to make the case because it is a perfect example of the sort of people whom the new clause would assist. Many women of that age did not get married and had to make different arrangements after the second world war that they would not have had to make in other circumstances, if such a seismic disruption to society's normal development in the United Kingdom had not occurred between 1939 and 1945. Those women made exceptional arrangements. Many were sisters who lived initially with their parents and then, when the parents died in the 1950s and the 1960s, lived together in the houses in which they had been born or brought up. The full implications are felt only when one sister dies many years later—the social legacy of the second world war has lasted many decades. Sisters in those circumstances are aghast that the inheritance tax burden should apply to them. There is therefore a compelling case for the new clause.

The Economic Secretary said in her intervention on the Conservative spokesman that inheritance tax would apply only to those who lived in what she implied was a posh house, which is worth more than £700,000. I appreciate that the number of houses that are worth that sum is falling by the day. This Government are perhaps trying to tackle the problem of the inheritance tax burden in their unique way. There are probably better methods, but they are doing their best. The threshold is not yet as high as £700,000, but the moral case is no different for sisters who were born in a house that is now worth £800,000 from that for those living in a house worth £600,000. They did not choose to be born in a house of a specific value—it is their home, the place in which they have lived for many decades, and they expect to live there for the rest of their lives.

I urge the Economic Secretary not to regard this as a wedge issue, with the Labour party playing to a core constituency and saying, "It doesn't really matter because we're only talking about rich people. They're the sort of people that the Conservatives speak up for and we can distinguish ourselves from them by saying that our priority is not to help rich old people but other groups in society." In the case that we are considering, people in a house now worth £700,000 are just as worthy of support, compassion and assistance as those whose houses are worth a different amount.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

Surely the Government would not say such a thing, since they have acted to cushion married couples who live in, to quote the hon. Gentleman, posh houses.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am trying to explore the Government's position, because it is difficult to understand fully the motivation behind the policy, although they seem to be very responsive to speeches made at Conservative party conferences. The only guidance that I would give the Labour party is this: whenever it tries to ape the Conservatives, its woes get worse rather than better. Tomorrow we are going to spend a lot of time talking about taxation of non-doms.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Actually, nearly all tomorrow's new clauses and amendments amount to yet more damage limitation—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Time is going on, but we have not yet reached tomorrow's debate.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Indeed. We should not get ahead of ourselves by moving on to the treats that we will be discussing tomorrow.

Let me return to the matter at hand, which is an important one. A number of national newspapers—from memory, The Daily Telegraph has been particularly prominent—have campaigned strongly on the issue, so people will want to understand the positions that the different parties have taken, and in particular the Conservative party's reservations.

I should be interested to hear the Economic Secretary's intellectual justification for saying that there is a significant material difference between, to take a hypothetical example, two women—let us say two 90-year-old women—who choose to enter a civil partnership, and therefore immediately become eligible for those benefits, and two 90-year-old women who have not met in the past few months, but who have lived together in the same house as sisters for the past 70 years. Indeed, as I said in an intervention, such a civil partnership could have been motivated by tax reasons. That would be a shame—although it would not be beyond our comprehension—whereas it could not possibly be the case for the two sisters who had lived together for many decades.

The Economic Secretary said that the situation would apply to very few people. Of course that is the case, but that only strengthens the argument; given that the costs are so minute, the Treasury need not worry unduly. In fact, the Treasury could be quite charitable and expand the scope of the scheme. The costs are so small that the Treasury could win a lot of good will from people who feel that they are unfairly penalised, at a small burden to taxpayers as a whole.

There are a few points in new clause 2 on which it is worth reflecting. One of them concerns the 10-year living together period. I assume that 10 years is an arbitrary figure, although any figure will inevitably be arbitrary, because it is quite hard to come up with a figure that is based on anything other than an arbitrary assessment. Some people might think that 10 years is quite a short period of time, because we are typically talking about two sisters or two brothers who have lived together for their whole lives. With higher house prices, brothers and sisters are increasingly buying flats together, in London or other parts of the country, because they cannot afford a mortgage on their own, they do not have a relationship with a partner and they regard buying a property with their brother or sister as the most safe and stable basis on which to proceed. In some cases, therefore, 10 years may be quite a short period of time. The Government may be more accommodating if that period were longer, and we could rightly consider that.

Photo of Frank Field Frank Field Labour, Birkenhead

The 10-year period was picked because I thought that there needed to be some ring-fencing of the new clause. There are no worthwhile figures as yet for how long civil partnerships last, but 10 years is longer than the average marriage. One might say that that is because so many marriages break up so early, thereby dragging the average down, but that is the average figure.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am grateful to the right hon. Gentleman for that intervention, because he has helpfully said that the figure was as un-arbitrary as he could make it, even though there was inevitably an arbitrary element involved. It is obviously necessary to have a figure, because we do not want people exploiting the provisions for tax purposes, even though that might not be foremost in their mind as they approach their imminent demise. I only suggest that, were the figure to be higher, the proposal would probably achieve its objective in terms of the type of people that we all have in mind while providing an even greater safeguard against potential abuses.

Hon. Members have asked where the provisions should stop. That is a fair point, and I hope that the Minister and Mr. Field will engage seriously with it. Stepbrothers and stepsisters, for example, would presumably come under the provisions. It would be strange if they did not, because it is increasingly prevalent nowadays for people to have stepbrothers and stepsisters rather than for all their siblings to have the same two parents. We could also consider other blood relatives. Rob Marris talked about cousins, but should we also consider second cousins? We could also consider people who have been adopted, carers and other categories of long-term cohabitants.

It is reasonable that the Government should look at all the implications of introducing a measure of this kind. However, it upsets people when the state appears to exercise an excessive and somewhat arbitrary power over individual citizens who are going about their business and who feel that they are being unfairly victimised. This has been a motivation for newspapers and other campaigners, and it has real resonance for people to whom the provisions do not apply. They instinctively feel that it is wrong for a very old lady to have to leave the home that she has lived in for perhaps 90 or 95 years because the sister with whom she has lived for most of that period has died.

The onus is on the Government to look into how we can address this issue. The Minister was quite right to say that the costs involved would be quite minute in the grand scheme of things. There would be no great financial barriers to making progress; it is only a matter of will.

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury 9:30, 1 July 2008

This has been an interesting and useful debate that will enable us to tease out some of the issues that have been considered. I would like to place on record my thanks to my right hon. Friend Mr. Field for raising this matter and for constructively engaging with us on it.

Two separate issues are involved, and perhaps it would be helpful to deal with them separately. The first concerns a point of principle; the second compassionate issues. Perhaps this will answer the point made by Mr. Browne. It is worth saying at the outset that we all have huge respect and admiration for anyone who is able to sustain a long friendship and relationship, such as those that exist between long-term cohabiting siblings. There are many families in which such relationships break down, and I have huge respect for the kind of relationships that we are talking about today.

However, I do not believe that a parallel can be drawn between such relationships on the one hand, and marriages and civil partnerships on the other, as the latter involve particular legal and financial characteristics. The civil partnership issue is rather a distraction in this context. We are talking about marriage, including marriages involving same-sex couples, and the law and society view such marriages in a fundamentally different way compared with other close relationships such as blood relationships or close friendships.

This issue has been tested in the courts, including the European Court of Human Rights in the case of Burden and Burden v. the United Kingdom, to which hon. Members have referred. The point was specifically discussed, so let me read from the findings of 29 April this year. The court said:

"The absence of... a legally binding agreement between the applicants"— in this case, the two sisters—

"renders their relationship of cohabitation, despite its long duration, fundamentally different to that of a married or civil partnership couple".

It went on to say that

"marriage remains an institution which is widely accepted as conferring a particular status on those who enter into it".

That is the crucial point. Our policy on inheritance tax recognises the special position of marriage and its equivalent for homosexual couples, and we think a line should be drawn at that position. We will thus resist the new clause and amendments proposed by my right hon. Friend the Member for Birkenhead.

The hon. Member for Taunton was entirely right when he said that the cost of accepting the amendments would be low, despite the point of principle that I have set out, but the precedent from crossing the line could potentially open us up to far wider costs. We have already debated some of the issues, but if we accept the provision for long-term cohabiting siblings, where do we draw the line? Should it be extended to cousins, parents or grown-up children, for example? Why, then, for 10 years, and not for nine, eight or seven years; and why not for flatmates or any other long-enduring relationships or even business relationships? Once we had conceded the first point, the potential cost to the Exchequer could, I feel, be extremely large. That is the point of principle.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Given that the Minister said in her opening comments that this provision would apply only to a very small number of people, because most do not have the good fortune to live in an expensive house, surely the costs would not be that large, even if she conceded quite a few different cases. By her own estimation, 96 per cent. would not be eligible for the benefit because their house would not be sufficiently valuable.

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

My point was that the overall costs would be far larger than simply the cost of accepting the particular amending provision. We have not costed it in detail because we have not looked at the number of long-term relationships that would be covered. My point was simple—that the cost of implementing the amending provision might be low, but that by conceding the principle, we could open ourselves up to far wider costs. That is a secondary point, however, as it is the unique institution of marriage and its gay equivalent that makes the point of principle here.

My hon. Friend Rob Marris spoke extremely well. He mentioned the issue of where we draw the line and he was right technically when he said that if we accepted the new clause, it would apply to any siblings who had lived together for any period of 10 years at any stage of their lives, which I am not sure was the intention behind what I guess was a probing provision.

Let me move on to the compassionate issues. We have heard examples in respect of which our hearts automatically go out to elderly people who obviously do not want to be forced to leave the home that they have lived in for many decades, perhaps even for the whole of their lives. Let me try to tease out some examples. I said earlier when I intervened on Mr. Gauke that once the limit was raised in 2010-11, the estate would have to be worth more than £700,000 before inheritance tax even became an issue. Let us think about an example where a house is worth £800,000—a round number, which makes it easier to work with. Let us suppose that such a house is owned equally by two siblings who have lived in it for a long time, perhaps having inherited it from their parents some time ago. If one of the siblings dies, the limit in 2010-11 will be £350,000, so inheritance tax will kick in on the difference between that and £400,000—namely £50,000. It kicks in at 40 per cent., so the inheritance tax bill is £20,000.

Two things could then happen. The bill could be paid over 10 years, which would mean £2,000 a year. I do not know how that equates to the council tax bill on the house, but it might be possible for the individual to meet the additional amount. If not, various options would be available. If even an extremely elderly person was facing a charge of £20,000 and owns an asset of £800,000, it would be fairly easy to remortgage to get the necessary amount. Although on compassionate grounds I have sympathy for the individual on losing their elderly sibling, I am not sure that there are grounds for the state to intervene.

I want to touch on the point made by my hon. Friend the Member for Wolverhampton, South-West about deferring the charge, even beyond phasing it for 10 years. In a sense, by remortgaging to get the capital required, a person is using the private market to do exactly that. With regard to the extremely exceptional circumstances of an individual in a house worth about £800,000 who is unable to access any of those possibilities, the HMRC inheritance tax manual allows situations involving genuine hardship or serious difficulty to be considered on a case-by-case basis. In extreme cases, therefore, there is a certain amount of flexibility, which would include postponing the payment of all or part of the tax due. Given the figures involved, however, there will not be many such extreme cases.

The hon. Member for South-West Hertfordshire said that the subject under consideration affects "average families"—he used that phrase. The median house price in England and Wales is £180,000, so I do not know what his definition of average is, or what the average house price is in his constituency, but from where I am standing, a property worth £700,000 is in no way average.

C

So, you are saying - it has nothing to do with people - but only the money the Government will loose??

How sad to see we only think of money.

Submitted by Catherine Mills Read 1 more annotation

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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?

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

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.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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?

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

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.

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

On a slightly tangential matter, I have a constituent who was widowed in 1969 and remains a widow, but who cannot do the doubling up, to use the vernacular, because she was widowed so long ago. She did not get real benefit from the inheritance tax provisions when her husband died, but she was adjudged technically to have benefited from them, because of their wording. I do not expect my hon. Friend to deal with that matter tonight, but I hope that she can look at it again. I do not know what the cut-off date is, but a small number of people, including my constituent, are caught.

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury 9:45, 1 July 2008

We announced that we would backdate the measure so that it covered existing widows and widowers, but I should be happy to examine the specific case that my hon. Friend has raised.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

My I endorse what was said by 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.

Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

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.

The point of principle is beginning to emerge. We want to make it clear that there is something special about marriage that makes it necessary for a nil band rate to apply. While we have sympathy and compassion for elderly people who have been living together for the vast majority of their lives, we feel that in view of the value of the estates concerned, Government intervention is not required except in the circumstances that I have described.

I welcome the debate, but on that point of principle, I urge the House to reject the new clause.

Photo of Frank Field Frank Field Labour, Birkenhead

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Further consideration adjourned. —[Siobhain McDonagh.]

Bill to be further considered tomorrow.