Understanding the Inheritance Tax Allowance for Married Couples and Those in Civil Partnerships

When it comes to your inheritance tax allowance in Hampshire, many believe that marrying their partner is the best option. This is because there are various reliefs and exemptions that you can make the most of. While your spouse must be UK-domiciled for you both to make the most of the full extent of these exemptions, you will still enjoy certain benefits even if they’re not.

Despite inheritance tax law in the UK leading many to marry, staying single could save you money in some instances. Read on to find out more about when you may want to refrain from marrying or joining a civil partnership. We’ll also tell you more about the transferable nil rate band so that you can weigh up your options.

The Transferable Nil Rate Band

One of the biggest advantages of marrying your partner is that you can transfer your unused inheritance tax allowance to your spouse. This goes by the name of the ‘nil rate band’. This is especially useful if a person dies with some unused nil rate band. In this case, this goes to the person’s spouse or civil partner. For 2018/2019, the nil rate band is £325,000.

If a person dies and leaves their estate to their UK-domiciled spouse, they will not have to pay any IHT. However, if this person remarries and their second partner passes, the nil rate band can only increase by a maximum of 100%.

For example, Jane and John married 25 years ago. When John dies, he leaves 40% of his estate to his son and the rest to Jane. Later, Jane remarries to George. George dies and leaves 40% of his estate to his sister and the rest to Jane. The total amount of unused nil rate band from John and George adds up to 120%. However, Jane’s personal representative can only claim 100% of this.

inheritance tax allowance marriage

So, Should You Marry or Stay Single?

As you can see, the amount of unused nil rate band that you can claim comes with restrictions. If you remarry after losing a partner, your new spouse will not be able to claim yours and your late partner’s nil rate band. Instead, they would only be able to claim their nil rate band and one extra. This would, therefore, mean that your late spouse’s unused nil rate band would go to waste.

The Residence Nil Rate Band

Aside from your standard inheritance tax allowance, extra nil rate band can become available in some instances. If your deceased partner’s home is set to go to a lineal descendant once you die, more nil rate band is available. This extra, or ‘residence’ nil rate band will increase from £100,000 to £175,000 in 2020/2021. This is subject to tapering reduction if your deceased partner’s estate is worth more than £2 million.

If there is an unused nil rate band, you can also file a claim in order to transfer the unused element. In this case, it’s important to remember that the overriding maximum residence nil rate band available for transfer is 100% or one extra residence nil rate band.

Get More Information About Your Inheritance Tax Allowance From N&S

If you are struggling to get your head around your inheritance tax allowance in Hampshire and whether or not you should marry because of it, working with a local accountant could help you. At Newnham & Son, we walk every one of our clients through the process so that they have all the information they need to make the best financial decisions. To find out more about our services and how we can help you, contact us today.

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