The rate of marriage has almost halved in the last 30 years, with the number of opposite sex marriages falling to its lowest level on record. However, the Inheritance Tax reliefs available for both marriage and civil partnerships have increased, which means that couples in a long-term relationship, rather than in a marriage can lose out on death. This tax benefit has resulted in my advice to long-term couples being repeated over and over – have you considered getting married?
Inheritance Tax is a charge on an individual’s estate, which is the value of all assets in an individual’s sole name at the date of their death, their share of any jointly owned assets and any chargeable gifts made in the seven years up to the date of death. Inheritance Tax is currently payable at a rate of 0% on the first £325,000 (called the “Nil Rate Band”) of an individual’s estate and thereafter usually at 40%.
A further relief is called the Residence Nil Rate Band and could be available, as long as the value of an estate is not over £2 million, in which case the allowance will taper away. This allowance, which is on top of the Nil Rate Band of £325,000, is currently up to £175,000 and available if you own or have owned a home and give it under the terms of your Will to ‘direct descendants,’ a term which includes a spouse or civil partner.
The Nil Rate Band and Residence Nil Rate Band are available whether or not a couple are married, if property is passed to direct descendants. However, if the estate passes on the first death to the survivor of an unmarried couple, then the Residence Nil Rate Band is lost. Any amount over the Nil Rate Band of £325,000 would then be chargeable to Inheritance Tax at 40%. Whereas, if assets pass to a surviving spouse on death, then there should be no Inheritance Tax to pay, as a spousal exemption applies.
On the death of the surviving spouse, it may then be possible for the Executors of the survivor’s estate to utilise any unused Nil Rate Band of the first spouse to die, called the Transferable Nil Rate Band. The use of the Transferable Nil Rate Band on the survivor’s death, does depend on how their estate was distributed and whether they made any gifts to be taken into account in the seven years before their death. Additionally, if the surviving spouse then passes the estate to their children, then the estate may be able to claim not only the surviving spouses Residence Nil Rate Band, but potentially also the Residence Nil Rate Band of the first spouse to die.
This means that a married couple could pass to the survivor, an estate free of Inheritance Tax on the first death, in addition to a potential amount being given on the survivor’s death of up to £1 million, free of Inheritance Tax. Contrast this with the unfavourable treatment of un-married couples and I am sure many will be considering popping the question.
It is food for thought, however please do not rely solely on this article. It is important to obtain professional estate planning advice, consideration of whether a pre-nuptial agreement should be prepared and remember that marriage will automatically revoke your pre-existing Will.
Serena Elliott, Solicitor with Bate & Albon, Chichester