IFS Publication Examines Taxation Of Families

by Jason Gorringe, Tax-News.com, London

19 June 2007

The Institute for Fiscal Studies (IFS) on Monday announced that it has compiled a discussion paper for the Tax Law Review Committee on the tax treatment of various types of family groups.

The Institute explained that:

"Since the introduction of independent taxation for husband and wife, most people are taxed individually, regardless of their family circumstances. However, significant exceptions remain with married couples being both advantaged and disadvantaged for income tax, capital gains tax and inheritance tax purposes."

"Following the Civil Partnerships Act in 2004, the tax treatment of civil partners has been aligned with that of married couples. Recently questions have been raised as to whether couples who are not married should be treated the same as married couples/civil partners. The Burden sisters raised with the European Court of Human Rights whether the current inheritance tax rules are discriminatory. The Law Commission is considering the financial hardship suffered by cohabitees on separation or death."

"Different taxes – income tax, inheritance tax and capital gains tax - adopt different approaches to the taxation of couples. They adopt different approaches to the taxation of couples on separation, divorce or death. While each rule may be separately justified, no coherent structure to the arrangements emerges. The tax credit system has added a further layer of complexity and has focused attention on just how the family unit should be defined."

The discussion paper produced for the Tax Law Review Committee examines the tax treatment of three couples in differing family contexts: a married couple with two children under the age of 16; an unmarried couple in a stable and long term relationship with two children under the age of 16; and a family where the couple have recently formed a relationship and have children from different relationships.

The paper considers the tax treatment of the couples while the relationship is ongoing, after break-up, and on the death of one of the couple. It also considers the potential for anti-discrimination challenges in the European Court of Human Rights, and the implications of the policies of the Government, the Conservatives and the Liberal Democrats in this area.

The Tax Law Review Committee (TLRC) was established by the IFS in autumn 1994 to examine whether the tax system was working as intended; efficiently and without imposing unnecessary burdens. Its role is to keep under review the state and operation of tax law in the UK, which it does by
selecting particular topics for study.

It does not seek to question Government policy as such but to look at whether existing arrangements achieve the policy in a satisfactory and efficient way. The Committee's members represent a broad cross-section of informed opinion from industry and commerce, the judiciary, academia and the professions.

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