Inheritance tax rules for married couples and civil partners

04.06.2020
Stephen Cameron
Financial Planning, Tax

Without careful financial planning, you may find that much of the wealth you spent your lifetime creating may be taken in tax rather than being passed to your loved ones.

Married couples and civil partners are allowed to pass assets to each other tax-free and, since October 2007, the surviving partner is now allowed to use both nil rate bands (providing one wasn’t used at the first death).

At best, this effectively doubles the amount the surviving partner can leave behind tax-free without the need for specialist tax planning. However, the value of the estate above £650,000 could still be liable to tax at 40%.

If you own a property when you die and leave this to linear descendants, then a further ‘Residence nil rate band’ of £125,000 could be available, and this could be claimed twice for widows/widower’s. However, the rules around this are extremely complex and not everyone will benefit.  

It is possible to make allowable (exempt/potentially exempt) gifts during one’s lifetime to help reduce the value of an estate. For example, it is possible to give away up to £3,000 each year as a lump sum or to make regular gifts out of normal expenditure, which can be seen as coming from disposable income and not reducing your capital. It is also possible to make cash gifts on marriage, birthdays etc. A full list of all gifts which are/may be exempt from Inheritance Tax (IHT) is available here

Whilst all allowances are welcome and provide the opportunity to reduce any liability that may exist to this tax, if your estate is valued considerably in excess of your available nil rate band and Residence nil rate band, then specialised advice from a qualified Independent Financial Adviser is highly recommended. This could help you reduce further or eliminate completely, any liability you may have.

Working as an Independent Financial Adviser alongside one of East Anglia’s leading Chartered Accountancy practices, in business for over 150 years, puts me in prime position to ensure that my clients and their families, can benefit from my advice, both during and after their lifetime.

“but in the world nothing can be said to be certain except death and taxes”

Inheritance Tax can be seen as a tax we choose to pay if we do nothing during our lifetime to guard against it, so this tax is perhaps, not so certain after all?

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