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The actor and comedian Ricky Gervais hit the headlines this week when he announced in an interview with Saga magazine that he will get round to marrying his partner of 44 years in order to avoid a huge Inheritance Tax (‘IHT’) bill on his £141 million estate.
It is not perhaps the extravagant proposal and black and white Instagram post that we are used to seeing from the stars, but it brings into focus the practical considerations and the legal and financial benefits of marriage.
Married couples and civil partners can pass unlimited sums to their spouse or civil partner both in lifetime, or on death completely free of IHT by virtue of the ‘spousal exemption’ available under Section 18 of the Inheritance Tax Act 1984. It is important to highlight that simply living together in an enduring relationship, regardless of its duration, is not sufficient to qualify for this exemption.
Lifetime transfers of money or property between unmarried couples are considered to be Potentially Exempt Transfers (‘PETs’) for IHT purposes and would be added to the chargeable estate of the person making the gift if they died within 7 years of the gift. Any assets, for example, heritable property, shares, jewellery or artwork, which increased in value from the date they were acquired would also be subject to Capital Gains Tax (‘CGT’) on a transfer to a partner. No CGT is payable on transfers between spouses or civil partners who are living together.
On death, all estate, other than estate passing to spouses, civil partners or charities, above the value of the available Nil Rate Band, currently set at £325,0000, is chargeable to IHT at the rate of 40%. The impact of this on the estates of many unmarried couples with much smaller estates than Ricky Gervais cannot be understated. It is possible that surviving partners in these estates would need to sell property or take out a loan in order to pay the IHT bill on their partner’s estate.
Where an individual’s estate passes wholly to their spouse or civil partner, their Nil Rate Band (and any Residence Nil Rate Band, if applicable) is unused and available for transfer to the survivor’s estate in addition to their own allowance. In the meantime, the survivor can consider other lifetime planning options to mitigate against IHT on second death, including making lifetime gifts, setting up trusts or restructuring their own Will.
There are many reasons that people choose not to marry, however, this should be weighed against the potential exposure to a significant tax bill and the associated financial difficulties that this could pose for your partner on your death.
If you are considering walking down the aisle to secure the IHT reliefs and your partner’s security, BTO’s experienced Wills, Estates and Succession Planning team are here to provide the advice and guidance that you need.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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