Inheritance Tax (IHT) can be a significant financial burden, but there’s a straightforward legal way to reduce or even completely avoid it. The solution lies in a simple piece of paperwork—a marriage or civil partnership certificate. This allows UK households to bypass tax on estates up to £1 million.
By understanding the mechanism behind this, couples can make full use of tax allowances and ensure that their loved ones don’t face an unnecessary tax bill.
Currently, Inheritance Tax in the UK applies to estates worth over £325,000. This tax is levied at 40% on the value above that threshold, which means that many families face steep financial obligations when a loved one passes away.
However, married couples and civil partners can legally avoid this tax on estates worth up to £1 million, thanks to certain exemptions and allowances.
The Role of Marriage and Civil Partnerships in Avoiding Inheritance Tax
According to financial experts, the simplest way for married couples or civil partners to avoid paying Inheritance Tax is by leveraging the “transferable allowance” system.
When one spouse passes away, their unused tax-free threshold can be transferred to the surviving partner. This essentially doubles the IHT threshold to £650,000, as each spouse or partner is entitled to £325,000 of tax-free inheritance.
This transfer can be applied to the surviving partner’s estate, effectively increasing the estate’s IHT-free value to £1 million. This can be particularly advantageous when combined with additional allowances for the family home.
As explained by Martin Lewis on his BBC podcast, the key to this strategy is the ability to pass on both the personal allowance and the residential allowance to a spouse or civil partner. By doing so, the couple can ensure that a property valued at £350,000 or more is included in the £1 million threshold, avoiding any IHT entirely.
Additional Tax-Free Allowances for Property Transfers
Another significant benefit of marriage or civil partnership is the residential nil-rate band, which can provide an extra £175,000 tax-free if the property is passed down to direct descendants, such as children or grandchildren.
This means that, when a property is involved, a married couple can pass on £1 million tax-free, assuming the value of the house is within certain limits.
However, this tax-free property transfer benefit only applies if the estate’s total value is under £2 million, with any excess taxed at 40%. According to legal expert Tamsin Caine from Smart Financial Planning, the ability to transfer tax-free allowances between spouses and civil partners provides a significant advantage, particularly in estate planning.
This feature ensures that even large estates can be passed on without incurring hefty Inheritance Tax fees.
