Tying the knot to save inheritance tax

Category: Estate Planning, Lasting Power of Attorney, Wills

As Valentine’s Day approaches it might not be the most romantic prospect to marry for tax efficiency. But for some, this option can result in added financial benefits for their families as well as peace-of-mind.

Being married or in a civil partnership means that you can pass any sum of money to your spouse without any inheritance tax being due. This is called a Spouse Exemption and has been in the news recently after the late Sir Ken Dodd married his long term partner Anne Jones 2 days before he died. This resulted in his estate avoiding £11 million of inheritance tax.

Unused Tax Allowances

In addition, you can also pass any unused tax allowances to the surviving spouse when the first person passes away. Currently each person has a main Nil Rate Band of £325,000 which can be all applied to any assets. In addition to this, there is a Residence Rate Band which is currently £125,000 (rising to £175,000 by April 2020). You can apply this to any main residence passed down to descendants such as children or grandchildren.

For a married couple who have children and want to leave their estate to each other before passing down to the next generation, by April 2020, they will have £1 million inheritance tax allowance as a couple. The table below might help:

Tax YearResidence Nil Rate Band (£)Nil Rate Band (£)Combined Allowances (£)
2018/19125,000325,000450,000
2019/20150,000325,000475,000
2020/21175,000325,000500,000

In contrast, if a couple were not to marry they would only have their individual Nil Rate Bands. Any assets which they pass to each other on first of them to pass away, would be deducted from those allowances. The same principle applies when the second partner passes their estate to the children. They also would not be able to utilise their Residence Nil Rate Band unless they pass their main residence (or a share of it) to their children on the first of them to die.

Additional Benefits

There are also other tax benefits for married couples available aside from inheritance tax. Our team would be more than happy to discuss these with you. But, where to find the engagement ring is up to you!

If you would like to seek advice in relation to your Wills, Powers of Attorney or personal estate planning then feel free to contact a member of our team on 01752 664444 and they would be glad to chat things through with you.