Inheritance Tax discussions after Ricky Gervais says the rules could force him to marry

Actor Ricky Gervais has prompted discussion of the current Inheritance Tax rules after telling Saga magazine that he would marry his partner of 44 years, Jane Fallon, to manage his Inheritance Tax situation.

The comment comes at a time when the government is reviewing cohabitation laws, including in respect of inheritance and separation, although changes in the Inheritance Tax situation are not currently under discussion.

What effect does marriage have on Inheritance Tax?

When an individual dies, they are entitled to an Inheritance Tax allowance of £325,000. This is known as the nil rate band. Inheritance Tax is generally paid on the amount of the net estate over this threshold at the rate of 40%.

There are some exemptions and exceptions, including the spousal exemption. This allows a married person or someone in a civil partnership to leave some or all of their estate to their spouse or civil partner, with no Inheritance Tax payable on that portion of the estate.

If someone is not married and chooses to leave all of their estate to a cohabiting partner, Inheritance Tax would be payable on the part of the estate over the nil rate band. When in turn that partner dies, Inheritance Tax will be payable again by their estate. This could in effect mean that Inheritance Tax is paid twice before the money is passed on, for example, to their children.

Another difference in the treatment of married couples and civil partnership couples is that any unused portion of the nil rate band can be transferred to the spouse’s or civil partner’s estate when they die. This gives the survivor’s estate an allowance of £650,000.

How can unmarried couples deal with Inheritance Tax?

Money can be gifted to a partner during your lifetime. As long as you survive for seven years after gifting the money or other asset, then no Inheritance Tax is payable on the sum. If death occurs within the seven years, then Inheritance Tax is payable on the sum gifted on a sliding scale. For example, if someone died five years after making a gift, then the tax is reduced from 40% to 16%.

It is also possible to put assets into trust during your lifetime, although it is important to take professional advice as there are other tax implications in respect of trusts and you also need to ensure the step is right for your circumstances.

Another option is to leave someone a life interest in an asset in your Will. This means that, for example, they will be able to live in a property you owned for the rest of their life, and once they no longer need it, it will pass to your choice of beneficiary, such as your children. Because they did not actually own the property, it does not form part of their estate and no Inheritance Tax is payable on the value of the property when they die.

Contact Us:

If you would like to speak to one of our expert estate planners, ring us on 01634 353 658 or email us at rob@pembrokewillwriters.com.