Britain should change 'discriminatory' inheritance tax law: EU

(BRUSSELS) - The European Commission on Thursday threatened Britain with court action if it does not change its "discriminatory" inheritance tax rules.

"The European Commission has formally requested the United Kingdom to amend its legislation which provides for discriminatory inheritance tax relief," the European Union's executive arm said in a statement.

The commission takes exception to the part of British law which grants inheritance tax relief on agricultural and forestry property on British territory, including the Channel Islands and the Isle of Man, but not elsewhere in the EU.

"The limited scope of the relief may dissuade taxpayers from investing in agricultural and forestry property outside the UK," the commission said in a statement.

"Consequently, the Commission considers that the United Kingdom's legislation, in its current state, is not compatible with the free movement of capital," enshrined in European law.

If the EU executive does not receive a "satisfactory reaction" from Britain within two months then "the commission may decide to refer the matter to the Court of Justice of the European Communities," the statement warned.

"The Commission is of the opinion that the UK should allow inheritance relief for all agricultural and forestry property situated in other EU and EEA (European Economic Area) member states, as is it does for similar property in the UK," it concluded.