‘Inheritance tax discriminates against single and childless people like me’

When Sue Bentley, 60, and her sister Lynda, 65, bought their first house together in Cornwall in 2016, living together seemed like the perfect solution for two unmarried siblings approaching their twilight years. 

But they now face an inheritance tax trap that will eventually cost them their home. 

There is an exemption from inheritance tax on any gifts that pass between spouses or civil partners. This means there is usually no tax to pay after the first death.

But this does not extend to cohabiting siblings like Sue and Lynda. Without the tax relief, one of the sisters will face a huge inheritance tax bill when the other dies, leaving them with no option but to sell up.  

“This will force whichever one of us that is out of her home, at a time of life when this will be emotionally disturbing and very stressful, to meet a government demand for money we have already paid tax on,” Sue says. 

“We love our home – it’s the sort of house we’ve always wanted,” she adds. 

The sisters – who share a passion for gardening and wildlife – enjoy companionship in retirement. Living together also means the sisters are there to look after each other if one of them falls ill. 

When they first bought their home, inheritance tax did not seem like a big issue. But since then, property prices have soared, pushing their house’s value up by 30pc. In that time the nil-rate band of £325,000 – under which no death duties are paid – has remained frozen.

Sue says she was outraged the tax break has not been extended to people in her and her sister’s position. 

“It seems bizarre, to say nothing of extremely unfair, that two people who have been related to each other all our lives can be penalised in this way when others, who have no relationship at all, could make a civil partnership and avoid the tax. 

“I’m not sure what two hard-working, tax-paying, law-abiding, prudent, fiscally responsible (and, until recently, Conservative-supporting) people have done to make this government want to punish us so severely.”

The Telegraph’s Tax Hacks columnist Mike Warburton has called this one of the UK’s great tax injustices and something the Government urgently needs to address.

A bill is currently going through the House of Lords that, if passed, would make transfers between siblings exempt from inheritance tax in certain circumstances – saving siblings like Sue and Lynda the loss of their home. 

Lord Lexden, who introduced the bill, yet to be granted a second reading, said in the House last year: “Can there be any doubt that siblings who share their lives in jointly owned homes represent strong, stable families? 

“It is a fundamental principle of conservatism to support all families. Why therefore do the Government continue to deprive these families of the protections they deserve, no less than married couples and civil partners, to ensure, among other things, that no bereaved sibling has to face the agony of selling the family home on the death of a loved partner in order to pay an inheritance tax bill?”

Sue and Lynda are not alone. Over the past week the Telegraph has heard from dozens of siblings, single people and childless couples who say they feel “discriminated against” by inheritance tax rules that exclude them from the same exemptions freely available to married couples and parents. 

How inheritance tax ignores the single and childless 

Cohabitees are the fastest-growing family group in the UK. 

Between 1996 and 2021, the number of couples choosing to live together, unmarried, has more than doubled – from 1.5 million to 3.6 million, according to the Office for National Statistics. Today, nearly one in five families feature a cohabiting couple.

Meanwhile, marriage rates have slumped. The number of weddings taking place dropped by 36.6pc from 1989 to 2019. Marriage rates fell to record lows in 2020, as lockdown measures led to the closure of wedding venues and registration offices. 

The fabric of families has changed dramatically in recent decades – and yet inheritance tax exemptions remain stuck in the past. 

One of the most generous tax breaks out there for married couples and civil partners is the exemption on transfers of assets between spouses, first introduced in 1975. This saved married couples and civil partners £2.6bn collectively in 2019-20, the latest year for which data exists.

Cohabitees do not benefit from this tax break, regardless of whether they are in a romantic relationship or not. 

Ian Dyall, of financial planning firm Evelyn Partners, says: “This often forces people to get married or enter into civil partnerships when they were happy living as they were. Often this happens just prior to death or whilst trying to deal with a terminal illness.”

Another issue faces single or married people without children. In 2017, the Government introduced the residence nil-rate band which gives homeowners an extra £175,000 allowance. But it only benefits those passing their main home onto their direct descendants. 

Mr Dyall says: “If you don’t have children, stepchildren or adopted children the allowance therefore becomes unusable. The allowance cannot be used for passing assets to nephews or nieces, or even your partner’s children if they are not stepchildren or adopted.”

“Why can’t I pass on more to my nieces and nephews?” 

Tony Mott, 73, says inheritance tax discriminates against single homeowners like him.

A retired civil servant, Mr Mott has been working all his life to be able to afford his semi-detached house in Hampshire. But soaring property prices in the South East mean he now faces a huge £100,000 inheritance tax bill on his estate.

This would be far smaller, perhaps even non-existent, if he was married and had children. 

Married couples can share their allowances for tax purposes, which means those leaving their home to their children can pass on up to £1m tax free once all their allowances are combined. But because he is single, Mr Mott’s allowance is capped at £325,000. 

“Not only have I already paid tax on every penny of my savings, but politicians seem to think it fair to steal a further 40pc of my estate upon my death. Surely I too should be able to pass my hard-earned wealth onto members of my family including nephews and nieces,” he says. 

Mr Mott says the nil-rate band of £325,000, which has been frozen since 2009, is insufficient to protect single homeowners who have seen their properties rocket in price during the recent boom. 

“This deliberately ignores the huge increase in property prices here in the South East over that period and is no more than a cynical attempt to catch all single home owners in this tax trap whilst the rich and influential pay nothing,” he says. 

Homeowners in the South East paid £1bn in death duties in 2019-20, more than any other region apart from London. 

Inheritance tax has become an increasingly lucrative source of revenue for the Treasury.  

Receipts hit a record high of £7.1bn last year, as the Chancellor’s freeze on tax threshold dragged thousands more estates into the net. 

The Telegraph is urging the Government to abolish inheritance tax, after more than 50 MPs called for an end to death duties. 

The Treasury has been approached for comment.

How has inheritance tax impacted you? Do you have a story for our campaign? Email money@telegraph.co.uk