Inheritance if you are not married

It is an unavoidable fact that you cannot take it with you when you go – but you can leave your wealth to your spouse tax free.

But what happens if you are not married?

At Continuum we are looking at the effects on your inheritance plans.

Marriage is not for everyone

Marriage, which was once the bedrock of society is in decline. Marriage remains popular, but it is not the only lifestyle choice. Cohabiting with a long-term partner and deciding against marriage or civil partnership is part of modern society, but many of those who take that route could face complications when money is involved if not planned for correctly. 

As any lawyer will tell you, there is no such thing as a “common law partner.” Although there may be social and other obligations, without a formal contract of marriage or civil partnership, there are few automatic rights over money or even things like a shared home. If one partner owns a property in their name alone, the surviving partner has no clear right of ownership or habitation if the owner dies.

Blood relatives who have been strangers for decades, or the taxman can be the ones who benefit rather than a much loved partner. There are ways to protect a home by arranging it to be in ‘common ownership’ when the property is bought. But the problem of inheritance tax remains.

Inheritance Tax

Inheritance tax has gone from a tax on the few – essentially the rich few – to a tax almost everyone can be liable to. The threshold for inheritance tax has simply not kept up with the price of property.

Everyone has an IHT allowance of £325,000 worth of assets. This is called the Nil Rate Band (NRB).  A generation ago, this was more wealth than most people could expect to own, even if they owned a home and had a modest investment portfolio.

But times and the price of homes have changed.  Even a modest home in many parts of the country will cost considerably more than £325,000.

The frightening thing is that IHT is payable at 40% of any assets above this level.

The UK Government provided a further important concession. The Residence Nil Rate Band (RNRB) this can be transferred between couples who are married or in a civil partnership and adds an extra £175,000 on top of the general NRB for the value of their main home before IHT is charged. (HMRC taxation rates applying for tax year 2022/23)

There is also a spousal exemption.  When one partner dies, all the assets held by one is simply automatically transferred tax free to the other. The important factor is that partners must be married, or civil partnered to be able to claim this exemption.

When one partner of an unmarried couple dies, the other becomes liable for IHT on any assets they inherit worth above the other partner’s IHT allowance. Worse, the IHT will be payable before the assets can be transferred, leaving the surviving partner with a hefty tax bill to pay. They may have to sell the home they shared to pay it.

What can you do?

Proper inheritance – or succession – planning may be the answer. By taking full advantage of allowances, and structuring wealth correctly, it may be possible to safeguard your wealth for those you leave behind.

Succession planning is a complex field and requires in depth knowledge of tax and many other areas where rules and regulations have mounted up. At Continuum we can provide the expertise you need and work with other professionals, such as your solicitor and accountant, to deliver the outcome you and those you leave behind really want.

The sooner we start, the sooner you, your loved ones and your wealth can be protected. Contact us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable estate planning strategy, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate taxation and trust advice & will writing.

The levels, bases and reliefs from taxation depend on individual circumstances and may be subject to future change.

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