What do two elderly sisters living on a farm have in common with the late fourth Duke of Westminster? The answer is that they been at the centre of debates over exemption for inheritance tax.
And according to Rebecca Whitlock, a member of West Midland law firm Challinors’ probate team, such debates are becoming more common.
That’s to changing social patterns, increased life expectancy and the legacy of war.
“IHT currently applies to all estates worth more than £312,000 and is charged on everything above this amount at a flat rate of 40 per cent,” she said.
“The nil rate band was increased in the 2008 budget, but thanks to the rapid growth in house prices in past years, an increasing number of estates are hit by IHT, so it is little wonder that exemptions from IHT are commanding a large amount of media attention.
“In particular, two key topics of the day are the provision for death in active service and whether the rights enjoyed by married couples and civil partners, which exempts the surviving half from inheritance duty, should be extended to account for the more varied lifestyle choices of modern society.
“The death in active service provision is a little known tax law that is 300 years old in origin. As the death toll of our soldiers in Iraq reaches more than 100, and our surviving Second World War veterans continue to diminish in number, hundreds of families may be eligible for this exemption without even realising.
“For example, many people are unaware that this law can apply even when the individual dies many decades later after military service. Indeed, the injury or disease acquired while in action does not even need to have been the direct cause of death, only to have contributed to or hastened death.”
One example, according to Ms Whitlock, is the fourth Duke of Westminster who was wounded in the leg by a shell splinter on 18 July 1944 and suffered from attacks of septicaemia for the remainder of his life, eventually dying of cancer in 1967. The case was brought forward in 1979 and as the court found his war wound to be a contributing cause of death, his entire estate was exempted from IHT.
“Recently Margaret Lewis, the daughter of Second World War pilot Frank Newborn, began court proceedings to fight for a refund on the tax that she paid on her father’s estate,” said Ms Whitlock.
“He died in 2001 from fibrosing alveolitis, a disease of the lungs which may have been caused by inhaling large amounts of the pesiticide DDT in India during the war.
“Margaret only found out that his estate may qualify for IHT exemption when she read about the provision last year.
“People who believe that they should have been exempt from IHT should contact the capital taxes office and ask for a refund on the tax plus interest from the time of death.
‘‘They should provide as much evidence as possible, for example the service number, a copy of the death certificate, a specialist medical report and any other supporting medical evidence.
“The process will not necessarily be easy. It can be difficult to establish what counts as ‘proof’ and in older cases people often find their GP will only have records dating back to the 1960s. The definition of military personnel can also be confusing. Since April 1953, the treasury looks for the same risks as service of a war like nature, which may include people such as doctors, nurses and drivers. For more complex cases, it is highly recommendable to consult an experienced professional solicitor.”
In 2006, the case of the Burden sisters raised the issue of whether different types of ‘life partnership’ in today’s society, should enjoy the same inheritance tax rights as married couples and, since 2004, of civil partners.
Married couples and civil partners are able to pass on their estate to the remaining spouse without paying inheritance tax. Furthermore if one spouse does not use up their nil rate entitlement of £312,000, then the surviving spouse can use this in addition to their own entitlement, allowing them to pass on an estate worth £624,000 without paying tax.
“Despite having lived together all their lives and shared their current home for 40 years, Joyce and Sybil Burden lost their case to enjoy these rights, meaning that the surviving sister may need to sell their home in order to pay the inheritance tax.”
Fiona Debney, at Challinors said: “The Burden sisters took their case to the European Court of Human Rights saying that the law discriminated against people whose life choices did not include marriage or civil partnership, such as those who remain single and live with friends or family members, or even cohabiting couples.
“While Joyce and Sybil lost their fight, their case did succeed in raising controversial issues. In today’s society, people have different types of long standing relationships that include financial dependency.
“As many people have been priced out of the housing market there has been a rise in people who are not in conventional relationships that are joining together to buy a home, whether siblings, friends or partners. Many of these people will not be factoring the costs they face upon the death of one party, or the threat of having to sell their home in order to pay.
“It is clear that there is still a long way to go to reform the inheritance tax system to clear up ambiguities and to take into account the diversity of modern relationships.’’