With more changes to Inheritance Tax rules on the horizon, will more couples now decide to get married?
It was reported earlier this year that ‘Location, Location, Location’ presenter Kirsty Allsop married her long-term partner. Despite having children together, Kirsty and her partner had been open about their desire not to get married, even commenting publicly that they were “happily unmarried”. Ken Dodd married his partner of 40 years just two days before he passed away, reportedly to avoid a significant proportion of his estate being subject to Inheritance Tax. Whilst both couples will no doubt have had personal reasons for deciding to tie the knot, it is a reminder of the tax benefits that marriage (and civil partnership) can offer from an estate planning perspective. Recent statistics show that the number of short notice marriages (‘deathbed marriages’) has increased in the last five years, with many doing so to minimise Inheritance Tax. This is particularly so in light of the Inheritance Tax changes announced in the October 2024 government budget.
Marriage, or entering into a registered civil partnership, has numerous legal consequences for the parties involved. Unromantic as it may be, there are various tax benefits available to married couples which are not available to those choose to stay unmarried.
From an estate planning perspective, getting married can have two key benefits: avoiding the ‘intestacy rules’ which make no provision for unmarried partners, and making use of the ‘spouse exemption’ for Inheritance Tax. Whilst, historically, Inheritance Tax has not been a concern for many people, increasing property prices and frozen thresholds mean that more estates than ever are now subject to Inheritance Tax. This will increase further when the value of unused pensions funds is brought into the Inheritance Tax net from April 2027 under Government proposals.
Avoiding the intestacy rules
For those who decide to get married or enter into a civil partnership, reviewing wills is very important as marriage automatically revokes any existing will. It is important to ensure that a new will is made after the marriage or, if made before the marriage, that the will is clearly stated to be in contemplation of that particular marriage. This will avoid a situation where the intestacy rules apply by default. It is also possible to make a will conditional upon the marriage taking place.
The intestacy rules are unlikely to reflect a couple’s wishes as to the division of their estate on death. For example, if a married person with children dies without a will, the surviving spouse would only receive the first £322,000 of assets, plus the personal possessions. The rest of the estate will be divided between the spouse and the children.
Inheritance Tax
Anything passing to a UK-domiciled spouse is free of Inheritance Tax. This is known as the ‘spouse exemption’. Whilst the ‘spouse exemption’ will not necessarily reduce the overall Inheritance Tax liability faced by a couple, it can help to ‘delay’ the payment of any inheritance tax until after the death of the second spouse. This has the benefit of ensuring that the amount passing to the surviving spouse is not reduced by Inheritance Tax and extends the period for lifetime gifts to be made to the date of the survivor’s death
What’s more, unmarried couples can also suffer a double charge to Inheritance Tax if insufficient planning goes into the structure of their wills. If assets are left to the surviving partner, the estate could be subject to Inheritance Tax on the first death, reducing the balance available to pass to the survivor. Then, on the death of the surviving partner, those same assets will be subject to Inheritance Tax again. Marriage could mitigate the double tax charge by enabling parties to make use of the spouse exemption on the first death. Another alternative could be to leave assets into a trust created by the wills rather than to the surviving partner absolutely.
Impact of pension changes
The full impact of the new rules by which pension funds are included in the Inheritance Tax net is yet to come in April 2027. Those with valuable pension funds should take professional advice to consider their options for passing pension funds to their loved ones. Changes to nominations and/or the use of trusts may be required to maximise flexibility and tax-efficiency.
It has been confirmed that the ‘spouse exemption’ will apply to pension funds passing on death. We may therefore start to see a trend of long-term couples deciding to get married or enter into a civil partnership to reduce the potential inheritance tax payable when one of them passes away and to maximise the opportunities for planning. Those who do decide to get married should also consider pre-nuptial agreements to protect their position.
