Inheritance Tax and Marriage

Inheritance Tax and Marriage

When I am advising clients on mitigating their exposure to inheritance tax and generally planning for death I am often asked to comment on which is the simplest and best solution available.

Is it the nil rate band, is it making gifts out of income, is it Agricultural property or Business Property Relief, or is it simply gifting assets and then surviving the gift by 7 years?

All of these reliefs are excellent reliefs and should always be considered if you are wishing to mitigate your exposure to IHT but one of the main question I ask clients is “Are you married or in a Civil Partnership?”

Subject to some exceptions for non domiciled spouses gifts to spouses or civil partners are completely free of all inheritance tax and are unlimited. There is no need to survive for 7 years and no complex rules or regulations to fall foul of.

I then explain to unmarried couples the costs of not being married which the survivor of an unmarried couple may be faced with.

  • Surviving partners have no rights to state bereavement benefits based on their late partners national insurance contribution record.
  • Depending on the rules of the pension scheme a surviving partner may not be entitled to a widows pension.
  • Any assets left to the surviving partner may be subject to inheritance tax if they exceed £325,000.
  • If you do not have a Will then your partner will not be entitled to receive your assets and they may have to go to court to show that they are a dependent of your Estate.
  • There is no transfer of any unused nil rate band from one partner to the other.
  • There will be a loss of relief when the new residential nil rate band is introduced in 2017.

Gifts between unmarried couples during their lifetime are only potentially exempt from inheritance and are subject to the donor surviving the gift by 7 years. In addition any gift constitutes a chargeable transfer for capital gains tax purposes and tax may be immediately payable on a lifetime gift.

The pensions issue can be resolved by nominating your partner to be your beneficiary but the other issues can only be resolved by either marrying or not dying.

If you would like an initial no obligation meeting to discuss your inheritance tax situation please contact Robert Peel or your usual Garbutt + Elliott contact.