The recent news that Ricky Gervais has announced that he will marry Jane Fallon (his long term partner of over 40 years) caused much media attention. This was especially because their stated main reason related to potential inheritance tax liabilities. It did also highlight the less advantageous position of couples who are not married or in a civil partnership, particularly in England and Wales.
How may UK inheritance tax impact?
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 remains at £325,000 (unchanged since 2009 and currently frozen until April 2030). 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 civil partner, 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 or civil partner decides to leave their house to direct descendants (children, including adopted children, stepchildren, or grandchildren), their estate will also benefit from the Residence Nil Rate Band (RNRB). This additional allowance is currently £175,000 per person. If the house passes to the surviving spouse or civil partner on first death, the survivor’s estate can benefit from double the RNRB on their own death — meaning a married couple or civil partners can potentially pass on up to £1 million free of inheritance tax (£325,000 + £325,000 + £175,000 + £175,000). Like the Nil Rate Bank, the level of the RNRB is also frozen until April 2030.
So for Jane and Ricky, the decision to marry could remove a huge tax liability should one of them die, albeit potentially delay the hit until the second spouse passes away. With careful planning, the eventual IHT bill could be significantly mitigated. With IHT thresholds frozen until 2030 and property values continuing to rise, more estates are being drawn into the inheritance tax net — making careful planning more important than ever.
What about those couples who are not married?
The decision of Ricky and Jane also highlighted the potentially precarious position an unmarried couple can find themselves (especially in England and Wales). That goes far beyond tax consequences.
I am sure Ricky and Jane already have Wills but their situation, highlights important things to consider if you are in a committed relationship but are unmarried. Put simply, if a couple do not have Wills, their position is very weak. In Scotland the situation has been strengthened, but arguably still needs improved.
If you and your partner already have Wills in place that provide for each other, then that is the best way to ensure that your partner is provided for upon your death.
However, if you have a Will that does not provide for your partner then they will have no right to make a claim upon your estate following your death. The estate, unless a claim for Legal Rights by a child exists, will be distributed in line with the provisions of your Will.
Therefore, while it is incredibly important to make a Will, it is equally important to update your Will following major life events such as moving in together. The absence of a Will creates significant additional worry, cost and delay for those you leave behind. Where a couple are not married or in a civil partnership, not having a Will has even greater consequences.
Many cohabiting couples often presume that they will be afforded the same inherent rights as a married couple upon their partner’s death. Unfortunately, this is not the case. The concept of a “common law” wife or husband no longer has any formal legal meaning or effect in Scotland. A surviving cohabitant has no automatic right to their partner’s estate if their partner dies intestate, or in other words, without a Will. This is irrespective of how long they have been in a relationship.
However, Scots law does recognise the concept of “cohabiting couples” and so cohabitants can make a claim against their partner’s estate provided that (i) the deceased was domiciled in Scotland immediately before their death, (ii) you and your partner were cohabiting in Scotland immediately before their death and (iii) an application to the Sheriff Court or the Court of Session is made within six months of the deceased’s death.
The Scottish Parliament has passed legislation to increase this period to twelve months after the death, but that law is not yet in force. Once an application is made to the Court, they get to consider various factors to decide what (if any) award they will make regarding a share of the deceased’s estate. At best, the co-habitee gets the same share of the estate as they would have had they been married. That could still lead to a split that is far from ideal. The amount awarded out of the estate is at the discretion of the Court.
In summary, if you are planning on moving in with a partner, or are already living together, it is strongly recommended that you make sure you have Wills that properly reflect your wishes. It is the only definitive way of ensuring they are protected and what you want to happen, actually happens.
For further advice, contact a member of Thorntons’ Private Client team on 03330 430150.
