Earlier this month, the UK celebrated National Siblings Day – a day to acknowledge and honour the bond between siblings. Regardless of whether some siblings grow apart as they get older and others become closer with age, it is a relationship that cannot be undervalued.
Here we have a look at the extent to which this familial relationship is protected by Succession Law in Scotland.
Inheritance Tax and siblings
When someone dies leaving an estate exceeding the Nil Rate Band (NRB) then Inheritance Tax (IHT) will be charged on the surplus above the NRB at the rate of 40%. However, those in a marriage or civil partnership are given an absolute exemption for assets which pass from one spouse to the other either during life or on death.
This considerable tax advantage is not extended to any other familial or interdependent relationships, including siblings. Currently, individuals who leave the residue of their estate to their sibling are not given any form of relief and their assets will be taxed at 40% beyond the NRB. The NRB threshold stagnated in 2009, resulting in a regime which has failed to keep pace with inflation and rising property prices. Unfortunately, in some circumstances, the home may have to be sold to settle the IHT liability.
Joyce and Sybil Burden were unmarried sisters who fought for 30 years to highlight this issue, culminating in them applying to the European Court of Human Rights, over a decade ago, to seek the same IHT rights as a married couple and help them to avoid a potentially crippling IHT liability.
The sisters had lived together for over 30 years in a house built on land inherited from their parents. However, due to rising property prices, it was likely that the home would be worth more than the NRB on the first death, resulting in the surviving sibling having no choice but to sell.
The Government are tasked with considering the potential for change which might enable transfers between siblings to qualify for exempt ion, bringing the IHT position more in line with the tax advantages afforded to married couples, although in the current climate this is unlikely to be a priority.
Legal Rights in Scotland
Where someone dies domiciled in Scotland, Legal Rights are designed to protect spouses/civil partners and children from being disinherited. The Scots Law concept affords these classes of individuals an automatic right to claim on the "net moveable estate" of the deceased. The spouse or child is deemed to be a creditor on the estate, and a claim can be made at any time during the 20 years following the deceased's death.
The concept of Legal Rights does not extend to siblings, nor is there is any requirement for an individual to leave anything to their brother or sister in their Will.
Is reform likely?
The IHT proposal will offer siblings some relief and can be seen as a welcome extension to the current IHT system. In practice however, it is likely to apply only on a relatively small number of occasions.
Whilst the law may seem unfair or potentially show a disregard for the bond between some siblings, it is important to highlight that the obligations the deceased undertook when getting married and having children were entirely autonomous and are not comparable to the relationship with siblings.
What can I do to protect my siblings?
If you wish to leave a legacy or your entire estate to your siblings, or you find yourself in a position similar to Joyce and Sybil, please contact a member of our team to discuss making a Will and potential estate planning options available to you to maximise the tax benefits available.
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