What Are The Inheritance Tax Rules For Married Couples?
When a spouse or violent partner dies, inheritance tax rules can protect their estate from being taxed.
If the surviving spouse is still living in the marital home and has spent at least three years with the deceased person as part of an unmarried couple, they will be exempt from inheritance tax1 on any assets worth up to £325,000 ($412,500) when it is inherited.
This applies even if one had not been working while bringing up children, for example.
If your residential property is outright (not through marriage), inheritance tax may apply – unless your home was transferred between spouses through gift during a relationship where both were alive on January 27, 1997, and this transfer took place after April 19, 1986.
Applying The Nil-rate Band
If your estate’s value exceeds these limits and some of your assets are exempt – for example, an inheritance or a share portfolio gifted by parents during their lifetime – then HMRC2 may contact you about applying rates relevant to those exemptions to calculate how much inheritance tax should be due.
Let me show you:
The nil-rate band is based on the value of an individual’s estate and not their income, so if you are under age 40, it may be worth considering making gifts to your spouse during your lifetime that would reduce this limit as it will now apply only up until 12 months after death.
If you exceed the threshold for inheritance tax but don’t want assets to go in trust (or instead make them subject to some other arrangement), consider gifting any excess at today’s rates – we can help with advising about these options.
Inheritance Tax On Property For Married Couples
If your spouse is not in a position to inherit their share of the home, you may be able to claim up to £100,000 worth from inheritance income tax relief. The remaining value will then be subject to inheritance tax at 40%.
The central residence allowance for married couples and civil partners was abolished when it became an annual charge in April 2018.
Let me explain,
Suppose you have any historic claims arising before this date that exceeded the exemption limit (£325,000 per person). In that case, they can still apply as long as you don’t make any additional purchases or improvements costing more than £25,000.
Using A Will For Inheritance Tax Planning
There are inheritance tax reliefs that can reduce the amount of inheritance tax payable on a person’s estate.
The current rates for inheritance taxes in England have been set at 18% for anyone with over £325,000 per individual (£650,000 jointly). However, it is still worth reviewing these options to see what would work best as we cannot predict future changes to these laws.
Restrictions On Transfers For Married Couples
The inheritance tax relief for Married Couples and Civil Partners is that you can transfer assets to your spouse or partner without being taxed on the value of those assets.
What does this mean?
Effectively this means that if one person inherits all their share in a business, they will not be liable for inheritance tax when transferring it to their spouse as long as there is no intention of carrying on with the trade themselves.
There are restrictions. However – any asset transferred between spouses must have been acquired before marriage or during the marriage but only up until seven years ago unless otherwise agreed by HMRC.
If Your Partner Died After 12 November 1974
If your partner died on or before 12 November 1974, the exemption is six years from the date of death, and this can be extended if there’s an administration delay with HMRC.
If Your Partner Died Between 22 March 1972 and 12 November 1974
If your partner died between 13 November 1974 and 31 December 1982, this limit changes again. Still, now it’s £30,000 with an additional exemption for allowances if you’re disabled, which could reduce the amount payable by up to half.
Only One Tax-free Allowance Can Be Used
Only one tax-free allowance can be used per person.
In the case of a married couple or civil partners, if one spouse dies before the other, then their allowance is passed on to the survivor as long as they’re not remarried and have at least six months left until inheritance tax would be levied (or three years for exempt items). The same rule applies when there are different levels of inheritance between spouses.
Can Spouses Inherit ISAS Tax-free?
If one person dies, the surviving spouse can inherit their partner’s tax-free cash or investments in an Isa (individual savings account) without inheritance tax.
However, if either of them were to remarry, they would lose this exemption and have to pay inheritance on bequests made into ISAS.
This is because any unused allowance from previous claims cannot be carried over once a new relationship has been established with someone who isn’t your civil partner or spouse.
What Is the Spouse Exemption for Inheritance Tax?
The spouse exemption for inheritance tax allows a person to inherit their partner’s cash or investments in an Isa (individual savings account) without inheritance tax.
Do Civil Partners Pay Inheritance Tax?
Civil partners are exempt from inheritance tax unless they have split up or one partner has remarried.
What Is the Inheritance Tax Allowance for a Widow?
A widow can claim an inheritance tax allowance for the first year after their partner’s death.
IHT is a major concern for people who are married or in civil partnerships. If one member of the partnership dies, then the other partner can inherit their assets and use them to continue living comfortably. However, if they do not qualify as an IHT spouse or civil partner, then they will have to pay tax on those assets when they receive them from their loved one