This month marks Valentine’s Day which is a time to think about and appreciate the significant person in your life – whether they are your spouse, civil partner or co-habitee.
Traditionally, it is a time for cards, flowers and chocolates and it is also a time for couples to think about their future.
Shelly Wainwright, wills and probate lawyer, explains how you can make sure that romance never dies, by making sure your loved ones are provided for by reviewing your personal financial circumstances and inheritance tax planning.
“Unmarried couples in particular are vulnerable to being caught out by a hefty inheritance tax bill when one of them dies,” says Shelly.
Each individual has an inheritance tax (IHT) allowance of £325,000 for this tax year 2016/2017. This is known as the nil rate band threshold. If you die, and the value of your estate exceeds this then there may be inheritance tax to be paid by your estate on your death. However, it may be possible to reduce your IHT liability with some careful planning in your will, depending on your marital status.
If you are married or in a civil partnership, you can share or transfer your IHT allowances. In this case, whatever the value of your estate, if on the first death your estate passes to your spouse or civil partner, then it passes IHT free. So there is no tax to pay even if your estate exceeds the IHT nil rate band threshold. This also means that your estate has not used its nil rate band.
As a consequence, on the second death, that estate can use its own IHT nil rate band and the unused nil rate band from the first death – this is called a transferrable nil rate band or TNRB. This can mean the second estate has an IHT nil rate band of up to £650,000 to be applied to the value of the estate. Then, only if the value of the second estate exceeds the £650,000 will there be any inheritance tax to pay.
However, if you are not married, then you are treated as a single person for IHT purposes and your allowance cannot be transferred. This applies no matter how long you have been in a permanent relationship, living together or even if you have children. This could mean that there is more inheritance tax to pay on your death, and less to pass on to your loved ones.
“I often advise unmarried couples to get married to help reduce the inheritance tax burden, but this is not the only option. Those who have taken my advice have been grateful, when on the first death it becomes apparent what this achieved for IHT planning. It may not be a romantic reason to propose to someone on Valentine’s Day; but if they accept it could be a sound bit of planning that saves thousands of pounds in inheritance tax,” says Shelly.
By the way – if you do take the plunge and become married or civil partners, remember to make new wills after the big day, as any wills made prior are revoked after you tie the knot.
For more advice about inheritance tax, making a will or any other wills and probate matter contact Shelly Wainwright on 01543 267984 or email email@example.com.
Ansons Solicitors has offices in Cannock and Lichfield, and Sutton Coldfield by appointment only.