Caring sisters deserved the protection of our tax laws

Caring sisters deserved the protection of our tax laws

The case of the Burden sisters, who have lost their last chance in court to stave off the prospect of a huge inheritance tax bill, demonstrates why British inheritance tax law needs a complete overhaul.

By anybody's standards the sisters, who are both in their eighties, are not poor. But much of their wealth is tied up in the £900,000 house in which they have lived for more than 30 years and cared for their parents and aunts until their deaths, thereby saving the state the cost. They have been caught out by spiralling prices in the housing market.

The Burdens have argued for years that cohabiting couples should be exempt from IHT, and in their latest, and final, unsuccessful battle in the European Court of Human Rights they claimed they were discriminated against because they did not qualify for the same tax protection as a married couple or civil partners.

The tragedy is that an amendment to the Civil Partnership Bill in 2004 during its passage through the House of Lords would have protected the Burdens and many other closely related cohabiting couples. It extended equal protection to blood relatives who had lived together for a minimum period of time - but was kicked out once the bill returned to the Commons.

This is not a scenario which applies to a very few rich people. Think of how many adult children move in with their parents, uncles or aunts to look after them. And a solicitor told me her firm was trying to help three pairs of.....continued below

Advertisement starts

---

---

Advertisement ends

sisters in the Burdens' situation. One pair was in education, another in nursing, hardly the highest-paying of careers.

The irony is that the Burdens' case has been rejected just as public sector pension schemes have decided to extend the same inheritance rights to cohabiting partners as to married couples and civil partners (see page 19).

The Financial Services Authority published radical proposals last week that could completely revolutionise how financial advice is supplied in the UK. In its interim report for the Retail Distribution Review, it suggests that all advisers should provide independent advice. To ensure such advice is completely impartial, they should be paid fees by their clients rather than indemnity or upfront commission by companies whose products they sell.

This is a brave and bold plan. It is, of course, absolutely what is needed to stop the mis-selling scandals that have cropped up all too frequently over the past two decades. No one can doubt that the payment of commission was behind the mass transfer of pension contributions from company and public sector schemes to private pension plans and the sale of low-cost endowments. It will also put the kibosh on the sales forces of certain banks who have mercilessly flogged us their sub-standard products.

But there are dangers too: it will involve pain for tied advisers (where they are contracted to sell the products of just one or two of companies) who have to retrain as independents, and for firms which have to switch from reliance on indemnity commission to fees. Many advisers could decide this is the final straw.

Even worse, people who really need advice could decide they can't afford the fees. The proposals are good, but the FSA needs to take great care in progressing them, or could end up throwing the baby out with the bathwater.

guardian.co.uk © Guardian Newspapers Limited 2008