'(1) The Inheritance Tax Act 1984 is amended as follows.
(2) After section 18 insert—
''Transfers of real property between joint occupier
18A (1) A transfer on death shall be an exempt transfer to the extent that it comprises a part or whole share in an interest in real property that has been occupied as the main residence of the transferor and the transferees throughout the two years prior to the date of death.
(2) For the purposes of determining whether a property has been in the occupation referred to in paragraph (1) above, there shall be disregarded any absences during which either party has had to receive residential nursing care whether in hospital or a private facility.''.'.—[Mr. Flight.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
Hon. Members will be aware that Civil Partnership Bill enables those who enter into a civil partnership to qualify for the spouse exemption from inheritance tax. Two elderly ladies living together may, if they wish,
There are many people living in houses, particularly in the south-east, that are potentially of value way above the inheritance tax floor. As a point of principle, it falls very hard on two sisters who have lived together for a long time if, when one dies and there is no money to pay the IHT, the other is turned out of the house. Secondly, there is a slight issue that the civil partnership arrangement implies, dare I say it, sharing the same bed.
I thank the Paymaster General for her educational comments. I was aware of the issue. The point that I making is that there is already a problem for two men or two women who have lived together for a long time, whatever their relationship. Because of property values, when one of them dies, the remaining partner may have to sell the house and move. Under the Civil Partnership Bill, if they choose to enter into a civil partnership contract, they will get the spouse allowance, but if they do not they will not—and if they happen to be two sisters, they are not allowed to anyway.
The new clause is designed to achieve fairness. When people are living together—and there is a deliberate two-year qualification period introduced—they should enjoy the spouse allowance. Without it, we will move into an unfair situation where some people will benefit, some people will not, and the underlying problem will not be addressed.
In their press release for the Civil Partnership Bill, the Government made the point that it was social policy legislation and that tax consequences would be dealt with in the first available Finance Bill. This Finance Bill is available and our new clause is available, so I would like to hear the Economic Secretary support it, as the Government effectively promised to do.
We all share sympathy for those people who have lost a companion with whom they have lived, but I cannot support the new clause.
The hon. Gentleman mentioned two situations: same sex couples; and couples who do not live together as cohabiting couples but share a residence. In the first situation, I recognise that the exemption from inheritance tax for the transfer between spouses is not an option for same sex couples. We are changing that by legislating for civil partnerships, and we have made it clear that all civil partners will be treated for tax purposes consistently with married couples. We will legislate for that at the next available opportunity. It makes sense to do so.
The Civil Partnership Bill is still before the House and has not been enacted. All hon. Members will have recognised over the past few weeks that a change to
one part of the tax system can often have much wider ramifications, so it makes sense to deal with a package of reforms in one go and to implement the tax commitments that flow from the legislation once it has been passed.
In many cases, adults who share a household without living together as partners do not leave their property to the person with whom they share it. Where they do intend to leave it, they have the same opportunity as unmarried couples to minimise the impact of inheritance tax by dividing the ownership in their joint lifetime. In those circumstances, IHT is not an issue unless the shared property is worth more than £500,000.
The IHT rules have already recognised in principle that people inheriting big illiquid assets, such as a house, can have difficulties meeting tax bills up front. Where the property remains unsold, the provision exists for tax to be paid in instalments on generous terms with an attractive rate of interest over as long as 10 years. Many estates start paying their IHT in that way, but the great majority pay just one instalment before settling the outstanding amount in one lump sum.
Despite all the sympathy that we share with people who have lost a companion in such circumstances, that confirms to me that there is no real target for justifying a substantial cost to the Exchequer and the taxpayer of perhaps £100 million. I hope that at this point in proceedings the hon. Gentleman will not press his new clause to the vote.
It being twenty-five minutes past Eleven o'clock, the Chairman, pursuant to Standing Order No. 88 (Meetings of Standing Committees), deferred adjourning the Committee.
No doubt, some partners will die during that period, so there will be no benefit. I should have thought that it would be possible to build the promised provision into this Bill.
Secondly, once the Civil Partnership Bill takes effect, there will be an ongoing issue with people asking, quite correctly, ''Why should someone get this tax benefit only if they happen to sign a civil partnership contract?'' There is no moral difference between two sisters living together and two other people of the same sex living together, but their IHT situations will be different. That is an ongoing issue.
I am pleased that the Government are committed to addressing the first part of the problem, albeit not in this Bill. I appreciate the fact that people will be able to own a property half each, which in many cases will mitigate the problem. However, as the Minister will be aware, the rise in property prices in the south-east has been such that quite a few people are still affected by this issue.
To a fair extent, the new clause is a probing clause, and although the Government have responded only in part, I would not want to the put it to a vote. I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Clause 308 ordered to stand part of the Bill.