Inheritance Tax - discrimination for Kinship care

rozb400

There are many children historically brought up in ‘informal kinship care’ relationships’ (I personally know 2 others) who have a parent/child bond with an alternate family member who raised them with little or no contact with their biological parents. As far as Inheritance Tax is concerned, they are discriminated against because they were not formally adopted as a child. They will only benefit from a £325,000 tax threshold instead of £500,000 for children, adopted, fostered or step-children.

 This is a discriminatory glitch, an anomaly in tax law, which the Government might wish to address, penalising children who had a difficult start to life and kind relatives who ‘stepped in.’

 Personally, I am now 65.  My uncle brought me up single handed from a baby as a ‘father’.  My biological parents were living abroad and due to my mother’s severe Post Natal Depression and rejection of me, it was agreed that my father’s older brother would bring me home to England and raise me (with my grandparents for a short time) until my mother recovered.

 My mother’s mental health worsened, meaning that I was parented throughout (baby to adulthood) by my uncle, as a single ‘father’   My biological father was prevented by my mother from contacting his UK-based family. I therefore had no contact with my biological parents throughout my life,  they made no contribution of any kind to my upbringing (or since) made no bequests to me on their death – their estate went to my sibling, who was brought up by them and with whom I have minimal contact.

 I lived with my uncle (as a ‘daughter’) from a baby until I left home to get married.

 I was his only ‘child’ apart from my children …his ‘grandchildren’.  He never married and he was my only ‘parent’ I ever knew.

 He sadly died in July 2023, aged 100. I was his main carer in the last 10 years of his life and we have been very close throughout, seeing each other several times a week… as ‘child and father’. He left his estate to me and to my children, including his house which has been our family home for 93 yrs. Which I was hoping to to live in myself. As his estate is valued over £325 but below £500 and because of the anomaly in tax law, I will have to pay over well £50,000 inheritance tax because I NOT classed as his child.

 There are no formal legal documents to say I was ‘kinship cared for’ or lived there until adulthood apart from such things as school reports, letters, neighbours’ friends’ testimonies etc. I cannot access the 1961, 71, 81 Census to prove I lived there, but that information must exist.

 I understand Inheritance Tax is a topic the Government is considering reforming.

 I know of two other friends who also have this problem. One brought up his partner’s son as his own, from the age of 2, but didn’t marry, so the child is not formally a stepchild. Another friend was brought up by a much older sister as her mum died when she was 5.

 I would be grateful for any advice on this or pointers on how to campaign on this inequality and bring it to the attention of as many people as possible.

SVaz

Why didn’t he formally adopt you?
I was adopted at the age of 3 in 1968 by my Maternal Aunt and her husband as she’d cared for me practically since birth,  so inter family adoptions were quite obviously possible back then,  it was probably a much easier process then too. 

Keep_pedalling

It’s not really a glitch it’s a design of the system and there is nothing you can do about it. 

My advice is try not to be bitter about it, it sounds like you and he had a good life together and you are still inheriting around £475k tax free which is a lot more than the majority of children inherit. 

p00hsticks

rozb400 said:

As far as Inheritance Tax is concerned, they are discriminated against because they were not formally adopted as a child. 

It isn't just inheritance tax - presumably if your relation had not made a will in you favour, the intestacy laws may have meant that you received no inheritance at all.

But I think the issue with trying to legislate for such 'informal kinship care' relationships is much the same as trying to legislate for unmarried partners, in that it is very difficult to define legally the point at which the relationship becomes serious / permanent.

 There is already usually a simple solution to address the issue in place, which is for a formal adoption to take place in the case of a child, and a marriage or civil partnership to take place in the case of a couple. If , for whatever reason, the parties involved cannot or choose not to make that commitment, then one could argue that the law would be wrong to unilaterally assume that that is the relationship that was desired when at least one of the people involved is no longer alive to confirm or deny it.

Malthusian

I agree with Keep Pedalling. It is not a glitch, it is to prevent people from trying to save themselves 5-6 figure tax bills by saying "but they always treated me like a son/daughter". It is a shame he didn't formally adopt you, but if he had lived to a slightly less ripe old age, the extra Residence Nil Rate Band wouldn't even have existed.
If the IHT bill is the obstacle preventing you from keeping the house as you wish, can your children or any family members loan you the money necessary to pay the IHT bill and avoid the sale of the house?
It should be possible to borrow the money against the home via equity release or a retirement interest only mortgage, given your age and the need for £50,000 against a home of c. £500,000. An expensive option and the last resort, but still an option.
Is the house left to you absolutely or shared between you and your children? If the latter, are they happy for you to remain living there rather than selling it so they access their inheritance?
(Incidentally, I checked the rules and it is not possible to adopt adults in the UK. So this really is a spilt milk problem, there is nothing you could have realistically done about it even if you had known earlier. If your uncle had married and been left a widower he would have had an extra £325,000 in Nil Rate Band; that isn't discriminatory either.)

sheramber

YOU do not pay inheritance tax. The estate pays the tax and you and your children share the balance of th estate according to his will.  

Marcon

rozb400 said:

 I would be grateful for any advice on this or pointers on how to campaign on this inequality and bring it to the attention of as many people as possible.

As others have said, it's a deliberate policy based on hard commercial logic, not an inequality which is going to be 'corrected' for the simple reason it isn't some sort of glitch or oversight.