The European Court of Human Rights ruled that the UK had not exceeded the wide margin of appreciation afforded to it where the difference in treatment of spouses and civil partners, on the one hand, and unmarried siblings on the other, for the purposes of granting inheritance tax exemptions, was reasonably and objectively justified for the purposes of art. 14 of the European Convention on Human Rights. Accordingly, there had been no violation of the taxpayers’ rights under the Convention.

Facts

The applicants were unmarried sisters, born in 1918 and 1925 respectively. They had lived together all their lives; for the last 30 years in a house built on land inherited from their parents. The house was owned by them in joint names. According to an expert valuation, the property was worth £875,000. Each taxpayer, in addition to her £437,500 joint share in the house, owned investments and other property worth over £150,000. Each sister made a will leaving all her property to the other.

The applicants submitted that the value of the house had increased to the point that each sister's one-half share was worth more than the current exemption threshold for inheritance tax (IHT) and that the survivor might have to sell the house in order to pay inheritance tax. As their situation was analogous to civil partners, their rights under the European Convention on Human Rights (Protocol 1, art. 1 read with art. 14) had been infringed since the domestic law did not afford them the IHT exemption available to spouses and civil partners.

Issue

Whether the taxpayers’ complaint was admissible; and whether the taxpayers’ Convention rights had been violated.

Decision

The European Court of Human Rights (ruling accordingly) said that, in order to claim to be ‘victims’ of any violation of their rights, the taxpayers had to be directly affected by the impugned measure. While it was true that neither of the applicants was yet under an obligation to pay IHT, since no such liability could arise until one of them died, nonetheless the sisters were aged 88 and 81 respectively. Moreover the property owned by each, principally each sister's half-share in the house, far exceeded the existing nil-rate band for IHT. Therefore, from the present perspective, and in view of the sisters’ advanced age it appeared virtually certain that one of them would, in the not too distant future, be required to pay substantial IHT on the property upon the death of the other. They could therefore claim to be directly affected by the impugned law.

Moreover, a declaration of incompatibility under s. 4 of the Human Rights Act 1998 was not sufficiently certain to be capable of providing redress, such as to require exhaustion by the taxpayer, on the grounds, inter alia, that while the minister had a power but not a duty to amend the relevant legislation, there was also provision that the minister could exercise the power to amend only if there were ‘compelling reasons’ for so doing. The remedy, therefore, was not sufficiently effective so that the taxpayers were not expected to have exhausted it before bringing their application to Strasbourg. It was dependent on the discretion of the executive and was ineffective on that ground. Further, the application was not inadmissible on grounds of delay given the high probability that the taxpayers would be directly affected by the IHT provision under the domestic law and, as there was no domestic remedy which they could be required to exhaust, the time-limit under the Human Rights Act 1998 for bringing a complaint did not apply.

It was for national authorities to make the initial assessment, in the field of taxation, of the aims to be followed and the means to be used and the state enjoyed a wide margin of appreciation when assessing whether and to what extent differences in otherwise similar situations justified a different treatment. The court would generally respect the legislature's policy choice unless it was manifestly without reasonable foundation and subject to the proviso that, in creating and implementing a scheme of taxation, the state was not to discriminate between taxpayers in a manner which was inconsistent with art. 14 of the Convention. The court accepted the UK government's submission that the IHT exemption was intended to promote stable, committed heterosexual and homosexual relationships by providing the survivor with a measure of financial security after the death of the spouse or partner. The state could not be criticised for pursuing, through its taxation system, policies designed to promote marriage; nor could it be criticised for making available the fiscal advantages attendant on marriage to committed homosexual couples.

In assessing whether the means used were proportionate to the aim, and in particular whether it was objectively and reasonably justifiable to deny cohabiting siblings the IHT exemption allowed to survivors of marriages and civil partnerships, account had to be taken of both the legitimacy of the social policy aims underlying the exemption, and the wide margin of appreciation that applied in the tax field. Any system of taxation, to be workable, had to use broad categorisations to distinguish between different groups of taxpayers. The implementation of any such scheme would, inevitably, create marginal situations and individual cases of apparent hardship or injustice, and it was primarily for the state to decide how best to strike the balance between raising revenue and pursuing social objectives.

In the circumstances of this case the UK could not be said to have exceeded the wide margin of appreciation afforded to it, and the difference of treatment for the purposes of the grant of inheritance tax exemptions was reasonably and objectively justified for the purposes of art. 14 of the Convention. There had accordingly been no violation of the article, read in conjunction with art. 1 of Protocol 1 to the Convention.

European Court of Human Rights (Fourth Section).
Judgement delivered 12 December 2006.