When clients approach me to make Wills – sometimes they don’t expect me to suggest that they should think about getting married! I have to say its one of the nice parts of the job when I hear that clients have been encouraged to take that ‘leap’ and several have recently (I make an excellent cupid..!)
The legal rights and status of cohabitees on death is a whole article in itself. The laws which apply where you don’t have a Will do not make any provision for your partner – no matter how long you have been together. In short – if you share a home or are in a relationship with someone you are not married to, come and see me because you need to make a Will.
It is quite common now to see couples who have been in a relationship together for many years, and have chosen, for whatever reason, not to get married. They may have been together decades, and may have adult children and grandchildren.
As unmarried partners – what are the inheritance tax implications if you don’t get married?
We each have an inheritance nil rate band of £325,000 which means that the first chunk of your estate up to this value is taxed at 0% – with the rest taxed at 40%. If you are married, there is no tax on any gifts that you make to one another as man and wife. Therefore, a correctly drafted Will should make sure that there is no tax to worry about for spouses on first death.
In addition to this, as man and wife, you can ‘double up’ your nil rate bands so that when you both die, you have £650,000 instead of £325,000 by way of a nil rate band to apply to your joint estate. Let’s not go into the Residence Nil Rate Bands here – again, this is an article in itself, but there are some additional nil rate bands too where you own a home and leave it to your children/grandchildren (note this additional relief benefits children or ‘step children’ and not the children of your partner).
Consider then, you share a home, you have savings, or other assets which you have accumulated between you which means that you each respectively have over £325,000 in wealth. If you want to leave this to your partner – they will have to pay tax on all assets over and above the £325,000. And yes, if your share in your home is worth over £325,000 your partner may have to pay to inheritance tax to keep it… which is the last thing you want.
In addition – as an unmarried couple, we don’t get to double up that nil rate band to £650,000 – which means that your children or other family they will need to pay tax on the whole joint estate over £325,000. The value of your home and other savings may soon bring you over £325,000. In this case – we have options for our Wills which will protect the nil rate band of the first to die, and we can talk to you about this (you don’t have to rush off to the registry office just yet!)
Getting married is not for everyone. We now have other options such as a Civil Partnership available to us. I like to think of this as a more ‘contractual’ or ‘civil understanding’ of what your relationship means. It is less traditional than the big white wedding and can seem more appropriate for some. Civil Partners enjoy the same rights, tax reliefs and otherwise as married couples and gifts to your Civil Partner are inheritance tax free.
To put it simply, making a Will with a specialist is more than putting your wishes down on paper. It allows you to be aware and to plan for the future. Inheritance Tax is a tax we can plan to reduce, in the right way.
If you would like to know more about protecting one another by making a Will and at the same time, put your mind at rest about inheritance tax then please email (hello@celtic-law.co.uk) or call 01352 860890.