The incidental benefits of marriage and civil partnership: Tax and Automatic Inheritance

The recent data publication from the 2021 Census England and Wales shows that nearly 4 in 10 adults have never been married or entered into a civil partnership, showing a steady decline over recent decades. Together with the figures from the Ministry of Justice outlining that as many as 60% of adults do not have a Will, makes for quite worrying statistics.

With this apparent shift in attitude towards marriage/civil partnership, it could catch people unawares regarding Inheritance Tax (IHT) and also who would actually benefit from their estate.

What unmarried couples may face regarding inheritance and Inheritance Tax (IHT)

It often surprises couples who aren’t married/ in a civil partnership that the spouse/civil partner exemption for IHT does not apply to them.

With the Nil Rate Band (NRB) still currently remaining at £325,000 and the Residence Nil Rate Band (RNRB) only applying if you own or have owned a residence and have descendants, then the IHT planning options are more limited. It isn’t just the planning for IHT but the actual effect of the burden IHT could have, for example, an unmarried couple owning a house together worth £600,000 plus £200,000 in bank accounts/savings, if one partner died then there could be IHT to pay. 

What if the deceased partner had left a Will? Does that change matters?

Even if the deceased partner had left a Will directing all assets to the surviving partner, there could be a second IHT liability on the passing of the surviving partner because there is no transferable NRB allowance available.

Added to this, the IHT position could be the least of the surviving partner’s concerns, as they cohabit and are not married or in a civil partnership, then he/she is not entitled to automatically inherit under the Rules of Intestacy.

What if the deceased partner did not leave a Will and we never married?

If the deceased partner did not make a Will then this leaves the survivor in a very precarious position, leaving them with the only option of bringing a claim under the inheritance (Provision for Family and Dependants) Act 1975.

Whilst some protection is afforded under the Rules of Intestacy to a spouse/civil partner, having a Will is always the most reliable option. In the above example, had the couple decided to marry or enter into a civil partnership then there would not be any IHT payable on the first death if the whole estate had been left to the survivor owing to the spouse/civil partner exemption for IHT.  IHT on the survivor’s estate would be reduced or eradicated because of the ability to transfer the unused NRB allowance.

Married or unmarried, we are here to help. 

If you are concerned about Inheritance Tax or if you need to get a Will in place then please do not hesitate to get in touch with Laura Ablett on 01761 409312, enquire through our website or attend our free legal advice surgery.

Laura Ablett is a full member of the Society of Trust and Estate Practitioners.