Two elderly sisters who have lived together for 30 years have had their appeal against inheritance tax rejected by the European Court of Human Rights.
Joyce and Sybil Burden – who are both unmarried - were appealing against a ruling that they should be liable for inheritance tax when the first of them dies.
Married couples or those in civil partnerships are exempt from paying any inheritance on their first death, but this does not apply to siblings. Under current UK law, the surviving sister will therefore have to pay 40% inheritance tax on the estate above a nil rate band (currently £312,000 for 2008/09).
The UK courts rejected the sisters arguement that inheritance tax laws discriminate against those unable to enter into civil partnerships last year, and now the European Court of Human Rights has rejected their appeal by 15 votes to two effectively ending their 32-year battle.
The court concluded that because their relationship was of a "different nature to that of married couples and homosexual partners", they were not the victims of discrimination.
In a statement, the Burden sisters said: "We have been fighting for 32 years just to gain the same rights, as regards inheritance tax, as married couples and now couples in civil partnerships... Having always paid our taxes, and having cared for our relatives and each other when necessary without any help from the state, we are now in the worrying and upsetting position of being unable to secure each other in our last few years."
Reduce your inheritance tax bill
Under current tax rules, inheritance tax kicks in on estates worth more than £312,000. Anything above this nil band will be taxed at a rate of 40%.
The current law states that if you pass your estates to your husband, wife or civil partner then they will not have to pay inheritance tax at all. Married couples or those in civil partnerships are also able to combine their inheritance tax nil bands to £624,000.
But if these exemptions do not apply to you, there are ways to reduce or avoid an inheritance tax bill.
UK law allows you to make gifts to certain people and organisations without having to pay any inheritance tax.
You can make tax-free gifts to your husband, wife or civil partner as long as you both have a permanent home in the UK. This includes a partner you are legally separated from but does not apply if you are divorced or your civil partnership has been dissolved.
You can also make gifts to UK charities, some national institutions such as museums and universities, and UK political parties.
However, there are rules about the types of gifts you can give.
Wedding gifts: Parents are allowed to give wedding or civil partnership gifts up to £5,000 without having to pay inheritance tax, while relatives can give up to £2,500 and everyone else can give up to £1,000.
Small gifts: You can also make small gifts up to £250 to as many people as you like in a tax year free from inheritance tax.
Annual allowance: In addition to your small gift and wedding gift allowances, you are able to give away £3,000 each tax year without paying inheritance tax. You can also carry forward your exemption for one year only, giving you the potential to give away up to £6,000 in one year.
Regular gifts: Any gifts you make from your after-tax income are free from inheritance tax so long as they form part of your regular expenditure. For example, you can gift cash gifts on birthdays or Christmas.
Maintenance payments: Any maintenance payments to your spouse, your ex-spouse, dependent relatives and children under the age of 18 or in full-time education are free from inheritance tax.
Potentially exempt transfers allowances: If you make a gift to someone that isn’t covered by any of the other exemptions, then this might be exempt from inheritance tax if you live for seven years after the gift is made.