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A Marriage of Inheritance Tax Convenience

A Marriage of Inheritance Tax Convenience

Last week two Irishmen announced that they intend to marry in order to “avoid inheritance tax”.

The inheritance tax rules in Ireland differ from the rest of the United Kingdom; however in both jurisdictions the transfer of assets between spouses is exempt from inheritance tax.

The wedding of Matt Murphy and his carer Michael O’Sullivan is planned to take place before Christmas. Both men are in their 80s and have been close friends for 29 years.  On death Matt wishes to leave his house to Michael. Without the union of marriage to link the two men, inheritance tax would be payable on any transfer on assets.  To allow assets to bypass inheritance tax, Matt and Michael have decided to marry, despite the fact that they do not hold a romantic attachment for one another. 

How may UK Inheritance Tax impact me?

On death a person’s estate will be liable to pay inheritance tax if their assets amount to more than the Nil Rate Band, which is currently £325,000. On death, a tax of 40% is charged on any estate above the Nil Rate Band.  However, a person’s estate is “exempt” from inheritance tax if they choose to leave their assets to their spouse or to charity.

Surviving spouses, who benefit from an exempt transfer of assets, also receive the deceased’s unused Nil Rate Band. This transferrable Nil Rate Band can be used by the survivor’s estate to mitigate the inheritance tax payable on death.

If the surviving spouse decides to leave their house to children (including adopted children or stepchildren) their estate will also benefit from the Residential Nil Rate Band. This additional allowance, which is set at £100,000 for 2017 and will rise gradually to £175,000 in 2020, is available to individuals who die on or after 6 April 2017.  If the house passes to the surviving spouse on first death, the survivor’s estate will benefit from double the Residential Nil Rate Band on death. Couples that wish to pass their estate onto the next generation welcome this increase in the inheritance tax threshold.

Final Thoughts

Matt and Michael’s intention to marry to minimise the effects of inheritance tax is a step in a new direction.  We will wait with interest to see how the situation develops in the coming years and as ever will keep you updated.  For now, we are left wondering, how far would the government be prepared to go to police spousal transfers?

Graeme Dickson is a Legal Director in our specialist Private Client team. For more information about Inheritance Tax Planning please contact Graeme on 0131 225 8705 or email, alternatively contact any member of our Private Client Team.

About the author

Graeme Dickson
Graeme Dickson

Graeme Dickson

Legal Director

Wills, Trusts & Succession

For more information, contact Graeme Dickson or any member of the Wills, Trusts & Succession team on +44 131 322 6166.