The Importance of Marriage and Civil Partnerships at End of Life

15th March 2018 Family Law

This week, legendary comic Sir Ken Dodd died just two days after marrying his partner of 40 years, Anne Jones. Many are now saying that he's had the last laugh as a hefty inheritance tax bill will now be avoided.

Leaving an estate to a legally-married or civil-partnered spouse rather than a partner or cohabitee has huge tax benefits. First and foremost, there is absolutely no inheritance tax to pay on anything passing to a spouse. A JMW client was exposed to several millions of pounds in inheritance tax, but the simple act of marriage eradicated the tax liability altogether.

Secondly, pensions can be passed to a spouse but not to a partner or cohabitee. For example, if an individual has a final salary pension and is unmarried, that pension would die with them. However, spouses can benefit from a hefty pension income provided they are married to the deceased at the date of death.

What is inheritance tax?

Inheritance tax (IHT) is a form of tax that is placed on your estate when you die. The nil rate band for inheritance tax is currently £325,000, while homeowners have a residence nil rate band of £100,000. This means tax will be payable when the value of an estate exceeds this amount.

For unmarried couples, this means everything except from the allowance will be subject to a 40% charge when one dies. Married couples, who leave everything to the surviving spouse, are not required to pay any inheritance tax on the first death, regardless of how big the estate is.

Furthermore, when married couples leave assets to each other, they also pass on their nil rate band. This means the surviving spouse's nil rate band becomes C650,000, allowing more assets to pass on to those named in the surviving spouse's Will. The same does not apply to unmarried couples.

Other exceptions to paying inheritance tax

There are a number of other ways to avoid paying too much tax on your estate. Any gifts you choose to leave to charity will be completely free of inheritance tax. What's more, if you leave a minimum of 10% of your chargeable assets to charity, then the rate you will be charged on your remaining assets will be reduced to 36%.

Other gift exemptions include not having to pay inheritance tax on gifts made up to the value of £3,000 in a tax year - if you don't make the full £3,000 allowance in a tax year, this can be carried over to the next year - and small gifts worth up to £250.

For more information on inheritance tax exemptions, take a look at our dedicated page here. If you want to speak to an expert about making plans for end of life, please get in touch with us by calling 0345 872 6666 or complete an online enquiry form.

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Tasnim Khalid is a Head of Department located in Manchesterin our Wills, Trusts and Estate Planning department

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