Talk about a storm in a teacup.  I’m not a great fan of people who whinge that they pay too much tax. But my prejudice really rises to the surface with a case reported everywhere today. The newspapers have been covered with reports of a recent judgment of the European Court of Human Rights, illustrated by pictures (such as the one below) of the victims, the two Burden sisters, who lost their court action today.

It does not take much for me to feel sorry for people, but I am afraid that I do not feel sorry for these two ladies. 

Their argument was that they were unable to benefit from the same inheritance tax exemptions enjoyed by spouses or those in a civil partnership (reserved for same sex sexual relationships) on the death of the first sister.  In English law there is no inheritance tax to pay on property devolved by one spouse (or civil partner) to the other.  The sisters argued, and our hearts were meant to start to bleed, that when the first sister died, the remaining mourning sister would have to sell the house they had lived in together for more than thirty years in order to settle the tax debt due to the government.

I’ve had a look at the judgment, and this assertion simply does not seem to hold any water.

The judgment says that the couple owned the house they lived in jointly, and it was valued at £550,000.  In addition they owned two other properties (!) worth £325,000 and each had savings and investments worth £150,000.  This means that they had assets between them worth over a million pounds.  £1,175,000 to be precise.  Or £587,500 each.

“11.  The house is owned by the applicants in their joint names. According to an expert valuation dated 12 January 2006, the property was worth GBP 425,000, or GBP 550,000 if sold together with the adjoining land. The sisters also jointly own two other properties, worth GBP 325,000 in total. In addition, each sister owns in her sole name shares and other investments worth approximately GBP 150,000. Each has made a will leaving all her property to the other.” (from the judgment)

So, let’s assume one of the sisters dies.  Inheritance tax will be payable on her estate of £587,500, but the first £312,000 is taxed at the nil rate.  The remaining £275,000 will be taxed at 40%, so the surviving sister will have to find £110,000 out of the total assets of £1,175,000 that she now owns.  Only £550,000 of this is accounted for by the house she lives in, so she will still have another £650,000 out of which to pay her tax bill. This will leave her with net assets after inheritance tax of £1,065,000 to leave to the local cat’s home…

Moreover, according to the judgment, she could choose to pay the tax bill in instalments over ten years, at a derisory interest rate of 4% :

“14.  Interest is charged, currently at 4%, on any tax not paid within six months after the end of the month in which the death occurred, no matter what caused the delay in payment. Any inheritance tax payable by a person to whom land is transferred on death may be paid, at the tax-payer’s election, in ten equal yearly instalments, unless the property is sold, in which case outstanding tax and interest must be paid immediately (section 227(1)-(4)).” (from the judgment)

Pleeeeease, put away your hankerchiefs, or use them instead to cry for those poor people hit by the government’s removal of the lowest 10% rate for income tax …

Or read these reports in the Times or the Telegraph, with its emotive but untrue headline – “Sisters cannot inherit house they lived in since birth” – and  the Guardian and spot the difference.  The Guardian says the house is now valued at £875,000 …

I should add that only where the house lived in by siblings is valued at more than £628,000 will inheritance tax be payable in a “Burden” situation.  If the house were worth more than that, and there were no other assets which could be realised to meet the tax obligation, there are all sorts of financial arrangements which could be used and which would leave the surviving sibling sitting pretty in the house.  The average detached house in the UK is, according to the BBC, currently worth £343,000.

If the Burdens were Mr and Mrs, not sisters, the tax bill on their estate of £1,175,000 on the second death (there having been no tax to pay on the first death) would be £344,400.  In the case of the Burden sisters, £110,000 would have been paid on the first death, and a further £300,400 would be payable on the second death, making a total of £410,400.  The difference between the two is £66,000 – which is probably about what their legal bill is, given that they instructed one of the most famous (and expensive) QCs specialising in European law and sure as heck did not qualify for legal aid.   They may also have to pay the legal costs of the UK government, though they will be considerably less.

Oh well, better in the lawyer’s pocket than the Chancellor’s, don’t you think?

If only journalists actually read the judgments, could do simple mathematics, and were not so hung up on trotting out predictable party lines.  The reporting of this case has been about the politics of inheritance tax, not about these sisters.

 

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