In inheritance tax planning, being married can be very much to a person's advantage. It creates opportunities that otherwise do not exist. Of course, being married includes being in a civil partnership in this context.
Some of these opportunities are more straightforward than others.
There are the more well known advantages, namely that transfers between couples are exempt from charge, and that when the second partner dies any of the nil rate band which was unused on the previous death can be claimed. The latter point means that in practice many couples need only be concerned about inheritance tax if their combined estate exceeds £650,000.
At a more sophisticated level, the married owner of a business can sometimes take advantage of business property relief and agricultural property relief to shelter most or all of the couples’ combined estate from inheritance tax, if they are survived by their spouse. Thus far more wealth can be passed onto to the next generation and the planning means you don't have to give away your property now. However, you do need to plan ahead as an inappropriate will could frustrate the idea and it is better to have the correct structure in place before it is needed.
Even without business assets, wealthier individuals willing to pass control to a spouse or civil partner can make substantial gifts without the assets leaving the couples’ estate, yet with potentially significant inheritance tax savings.
However, note that some couples are more equal than others! That is to say if you are married to a person with a foreign domicile, in certain circumstances some of these advantages may be severely restricted. Whether the current UK rules in this respect would withstand a challenge in the European Court of Justice is questionable, but beyond the scope of this article.
For more information please contact Janet Pilborough-Skinner.