Inheritance tax information for married couples and civil partnerships

Contemplating the death of a spouse is difficult, and something none of us want to think about. As well as the personal grief, there are financial and legal issues that need to be dealt with. Planning in advance can help make this difficult time easier, and ensure that loved ones and family are supported in the best possible way. Understanding the inheritance tax (IHT) rules for couples can help reduce unnecessary stress, protect the estate you have worked hard to create and help provide a legacy for those left behind.

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Inheritance Tax Rules for Couples

There are specific IHT rules that apply only to married couples and those in a civil partnership. In most cases, these rules will mean that there is no inheritance tax to pay, if you leave everything to your legal partner.

There are three main inheritance tax exemptions and allowances that affect spouses:

  • Inheritance Tax Spouse
  • Exemption
  • Transferable Nil Rate Band
  • Residence Nil Rate Band

Together, they can help a couple protect up to £1 million of assets against unnecessary inheritance tax.

Inheritance Tax Spouse Exemption

Under the IHT spouse exemption, married couples and civil partners living in the UK can pass all of their estate to their surviving partner, tax free. There is no upper or lower limit to the value of the estate. Any inheritance tax payable becomes due only on the death of the second partner. This exemption does not apply for couples who are simply living together, in a so-called common law relationship. For this reason, many long-term cohabitees might wish to consider marriage or forming a civil partnership, as part of their IHT planning.

Transferable Nil Rate Band

Married and civil partnered couples can also benefit from passing on any unused personal IHT allowance. An individual has a Nil Rate Band (NRB) tax allowance of £325,000. Upon death, if the entire estate is being left to the surviving partner, the whole of that allowance is passed across to the spouse. This would give the surviving partner a total nil rate band IHT allowance of £650,000.

If the deceased partner has used up any of their IHT allowance, for example leaving money or items of value to others in their will, or having made gifts within seven years of death, then the unused portion of the allowance can still be passed across.

Related reading: Making a will with our Will writing Solicitors.

Residence Nil Rate Band

The residence nil rate band gives an individual a £175,000 allowance when the main residence is passed on to a direct descendant, including the spouse. This is in addition to the £325,000 NRB, giving a total IHT allowance of £500,000 per person. The residence nil rate band can also be passed on to a spouse or civil partner. This means that married couples or civil partners, have a combined total of £1 million inheritance tax allowance on their total estate. For high value estates, worth more than £2 million, this allowance is reduced by £1 for every £2 above the £2m threshold.

Understanding these three exemptions can help reduce anxiety about what might happen to your home and estate, when a partner dies, or what taxes might be payable.

Need more information on inheritance tax?

Taxation is never straightforward, and government policy and legislation can often change. Dealing with such issues after a bereavement can be difficult. Goughs have an experienced team of solicitors that can provide advice and assistance in all aspects of inheritance tax, helping you to protect and support your loved ones. Get in touch with one of our inheritance solicitors today and let us help you plan for the future.  We look forward to hearing from you.

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