Marriage to avoid inheritance tax

Cluelessabouttax

My partner and I are not married are buying our second house together as joint tenants. We have had an offer accepted at £780,000. Currently neither of us have wills (I know! I know!) we will have £510,000 of equity to put into the new house after selling the old one and are borrowing £270,000. 

To cut to the chase I have worked out that after approx 5 years of paying the mortgage we will have over £650,000 of equity in the new house. My understanding of inheritance tax is that if one of us dies as joint tenants we would inherit the others half of the house. However we would have to pay 40% tax on whatever the value over £325,000 the others half was worth. 

However if we marry we would inherit the other persons half without any tax at all. 

We have always been perfectly happy not being married; but I’ll be damned if One is stands to be bereaved and paying tax at the same time. 

So am I right in that if we don’t marry we could end up paying inheritance tax?

Thank you in advance. 

Linton

You are wrong.  With "joint" ownership (unlike "tenants in common") the survivor automatically becomes the sole owner with no money passing through the estate.  It doesnt matter whether the joint owners are married or not.

For more details see https://www.gov.uk/tax-property-money-shares-you-inherit/joint-property-shares-bank-accounts

Cluelessabouttax

Yes I read that but I think there is still a possibility inheritance tax would be payable here is a quote from that page 

“

Joint tenants

You automatically inherit anything you owned as ‘joint tenants’.

You may have to pay inheritance tax if the whole of the deceased’s estate (all their money, property and possessions) is worth more than the Inheritance Tax threshold of £325,000 and the deceased’s estate does not pay.”

Cluelessabouttax

Yes I read that but I think there is still a possibility inheritance tax would be payable here is a quote from that page 

“

Joint tenants

You automatically inherit anything you owned as ‘joint tenants’.

You may have to pay inheritance tax if the whole of the deceased’s estate (all their money, property and possessions) is worth more than the Inheritance Tax threshold of £325,000 and the deceased’s estate does not pay.”

getmore4less

Linton said:

You are wrong.  With "joint" ownership (unlike "tenants in common") the survivor automatically becomes the sole owner with no money passing through the estate.  It doesnt matter whether the joint owners are married or not.

For more details see https://www.gov.uk/tax-property-money-shares-you-inherit/joint-property-shares-bank-accounts

That's wrong and that link does not say that.


The asset passes by survivorship so does not fall into the distributable estate.

The nominal 50% still fall into the taxable estate then anything over £325k gets taxed.

On second death it gets taxed again 

There are no transferable nil rate bands to help with the tax,  if no qualifying benefictiaries no residential nil rate band.

that £650k property gets hit for £130k tax on second death.

Married or Civil partnership resolves that IHT issue and is the simplest solution. 

There are other ways around it but often causes other issues like CGT.

Linton

Sorry, I was not thinking clearly.

Keep_pedalling

Sounds like you have been together for a long time, you really should get your wills sorted as a matter of priority otherwise the survivor could be facing a financial disaster if one of you had a fatal accident, as a temp solution a couple of simple DIY wills leaving everything to each other would be wise.

Getting married or forming a civil partnership will prevent any IHT being payed on the first death regardless of how much your wealth grows.

The other thing to put in place is lasting powers off attorney for finance and welfare. If one of you becomes mentally incapacitated though accident or illness, no LPA is going to cause the other partner major issues particularly for finance.

Marcon

Cluelessabouttax said:

So am I right in that if we don’t marry we could end up paying inheritance tax?

Yes. Not the most romantic reason, but a very practical one!

p00hsticks

mobileron said:

I  decided to get married after 14 years, two reasons,to secure things for my partner when i die and to save tax.

We did similar, but after 30+ years.

Cost about £100 all in at the local register office, with just two witnesses.

There are a number of financial advantages to being married, including the inheritance of any Defined Benefit pensions and, as the OP has realised, tax savings. Plus it makes the administration of one party's affairs by the other possible/simpler.

Note for the OP - if you decide to get married and make a will, do it in that order, or make sure the will is made 'in contemplation of marrage', otherwise a susequent marriage invalidates the will.

MalMonroe

Hello!  I know a lovely couple who have been together for 30 years now without being married and have been very happy and raised a lovely daughter. However, they have recently been muttering something about how they won't be able to reap the benefits of married couples when one of them dies. I'm not sure if they are intending to just pop down to the registry office and have a very quick marriage because I know that would be their preferred modus operandi. And they won't tell anyone, either. They just hate to be dictated to - 'if you're not married you won't have the same rights as those who are' - and I have to say that I agree with them. In the 21st century people have to be married in order to inherit what should just be rightfully theirs? Medieval.

You could get married in a similar simple way, if you wished. It doesn't have to be a big ceremony or party and you don't even have to tell anyone if you don't want to. But simply to ensure that things are easier for the person left behind because bereavement is hard enough without having to worry about financial matters as well. 

And you know, I think there's far too much fuss made about wills - yes, we want things to be sorted for those we leave behind but the law has ways of sorting things out for those who die intestate. If I had anything to leave I might consider having a will but I really don't like the way that some people who have made wills feel they are superior to others because of it. 

Keep_pedalling

MalMonroe said:

Hello!  I know a lovely couple who have been together for 30 years now without being married and have been very happy and raised a lovely daughter. However, they have recently been muttering something about how they won't be able to reap the benefits of married couples when one of them dies. I'm not sure if they are intending to just pop down to the registry office and have a very quick marriage because I know that would be their preferred modus operandi. And they won't tell anyone, either. They just hate to be dictated to - 'if you're not married you won't have the same rights as those who are' - and I have to say that I agree with them. In the 21st century people have to be married in order to inherit what should just be rightfully theirs? Medieval.

You could get married in a similar simple way, if you wished. It doesn't have to be a big ceremony or party and you don't even have to tell anyone if you don't want to. But simply to ensure that things are easier for the person left behind because bereavement is hard enough without having to worry about financial matters as well. 

And you know, I think there's far too much fuss made about wills - yes, we want things to be sorted for those we leave behind but the law has ways of sorting things out for those who die intestate. If I had anything to leave I might consider having a will but I really don't like the way that some people who have made wills feel they are superior to others because of it. 

No one has to get married anymore to take advantage of the spousal exemption, you can simply formalise your relationship with a civil partnership. 

As for too much fuss being made about wills, yes there are intestacy rule to fall back on, but for a couple without the formality of a marriage or CP, it is irresponsible not to put wills in place if intestacy is going to cause problems, such as assets going to parents or siblings not the long term partner or being tied up in trust for years as the assets pass to young children not the surviving parent.

The same goes for LPAs. Leaving a long term partner in a bind because they cannot control your finances if you become incapacitated, or have to defer to parents or siblings on health and end of life decisions.