Marriage or a civil partnership can change how inheritance tax is applied. This post explains how marriage inheritance tax rules work and practical alternatives if you do not want to marry.
Thinking about marriage purely to save inheritance tax is a big decision. But marriage or a civil partnership does bring clear inheritance tax advantages under England and Wales law. This article explains how that works, uses a simple example, and sets out practical alternatives if marriage is not right for you.
Why marriage can affect inheritance tax
If you are married or in a civil partnership, transfers between you are exempt from inheritance tax. Also, certain allowances can be transferred on death between spouses or civil partners. The two key allowances are the nil rate band (NRB), currently £325,000 per person, and the residence nil rate band (RNRB), currently £175,000 per person when passing the family home to direct descendants. These allowances can make a big difference to whether your estate faces a charge.
How transferable allowances work
On the first death, any unused NRB and RNRB can be transferred to the surviving spouse or civil partner. That means a married couple can potentially protect a larger combined amount from tax on the second death than two unmarried partners could. For estates over £2 million, the RNRB is tapered, so it is important to check whether that applies to your situation.
An example: Tim and Jenny
Here is an illustrative scenario to show the impact of marriage. Tim and Jenny are in their early 50s with two children. They have a mortgage-free home worth £500,000, cash savings of £200,000 and £50,000 each in ISAs, making total assets of £800,000.
If they remain unmarried and everything passes to the survivor on first death, that first estate may be partly chargeable. In this example, the first death produces a modest IHT bill, and because the survivor cannot inherit tax-free as a spouse, the available allowances are used up and the second death results in a larger IHT bill. By contrast, if Tim and Jenny were married, transfers between them on the first death would be exempt, and transferable allowances would typically protect the full estate on the second death, leaving the children better off.
This example is illustrative and simplified. Exact IHT amounts depend on ownership structure, gifts, prior use of allowances and whether the RNRB applies in full. If you would like help modelling your specific figures, we can help.
What if marriage is not on the cards?
If you do not want to marry or enter into a civil partnership, there are planning steps you can take to reduce IHT for your family.
Put clear Wills in place
Make sure you each have a will that reflects how you want assets to be distributed. Without a will, intestacy rules apply and an unmarried partner has no automatic entitlement, which can leave your loved ones exposed. Our Will writing service can help you put appropriate arrangements in place: Will writing or make a simple option using an online will.
Consider trusts and altering ownership
You can change how the home is owned, for example severing a joint tenancy so your share can pass under your will, or use specific trusts written into wills - such as a life interest trust or discretionary trust - to control who benefits and when. These tools can preserve the residence nil rate band or otherwise reduce the taxable estate. Learn more on our trusts page.
Deed of variation and life insurance
After a death, beneficiaries have two years to agree a deed of variation which can redirect assets for a better tax outcome. It is a useful option, but it is better to plan in advance rather than rely on it. Another straightforward option is life insurance written to cover an expected IHT bill, which can be cheaper than you might expect and puts the money where you want it on death.
Other practical steps
- Arrange Lasting Powers of Attorney so decisions about your finances and health are made by people you trust, if you are unable to act. See our Lasting Powers of Attorney service.
- Review beneficiaries on pensions and other assets - these do not always pass under a will.
- Get professional advice if your estate is close to the RNRB taper threshold of £2 million, or if you have made significant gifts in the last seven years.
Where to find reliable information
For official guidance on inheritance tax and the residence nil rate band, the UK Government website is authoritative and kept up to date: gov.uk - Residence nil rate band.
If you would like to discuss how marriage, wills and trusts could affect your family’s inheritance tax position, our friendly team can help model your situation and recommend practical steps.
Contact us to arrange a friendly, no-obligation conversation or call our office to speak with a member of the team.
For practical steps now, consider instructing us to write your wills or set up LPAs: Will writing, Lasting Powers of Attorney. If you prefer a quick start, our online will can get your basic wishes down and give you breathing space to plan further.
Whatever you decide, the important thing is to make an informed choice and put the right legal documents in place so your family are protected.
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