Following Valentine’s Day, many couples will have reflected on their commitment and long-term future together.
However, financial journalist and founder of MoneySavingExpert.com, Martin Lewis, recently said that there are also important legal and financial implications that affect how much of your estate is passed on to your loved ones.
On his show, The Martin Lewis Money Show, Lewis gave a fictional example using characters Hal and Lou Yah, and put forward several outcomes of what would happen to Hal’s estate if he had:
- passed away as a single man,
- passed away after being married to Lou for over 30 years,
- passed away after being Lou’s unmarried partner for over 30 years.
Under current UK legislation, individuals have a £325,000 nil-rate band (NRB) and a £175,000 residence nil-rate band (RNRB) for direct descendants, totalling a £500,000 potential allowance (subject to estates being less than £2,000000).
Married couples/civil partners can transfer unused allowances, allowing them to pass on up to £1 million tax-free.
This provides a potential allowance of up to £500,000 per person.
Till death do us part
Lewis explained that one of the most valuable but often overlooked benefits of marriage is the ability to pass on unused inheritance tax allowances to a surviving spouse or civil partner.
Crucially, he emphasised that married couples and civil partners can combine these allowances, allowing up to £1 million to be passed on free from inheritance tax.
He described this as one of the most significant financial protections available to families, ensuring more of your estate goes to your beneficiaries rather than being lost to taxation.
Sadly, unmarried couples do not benefit from these protections as inheritance tax law does not recognise cohabiting couples in the same way, regardless of the length or seriousness of the relationship.
This can result in inheritance tax being charged at 40% on assets above the available thresholds, potentially creating substantial and avoidable tax liabilities.
Lewis said: “Had they [Hal and Lou] got married and done it right, it [inheritance tax] would be nothing.”
Holy matrimony
It is also important to note that only legally recognised marriages and civil partnerships qualify for these inheritance tax exemptions.
Religious or cultural ceremonies alone do not automatically provide legal marital status unless they are formally registered under UK law.
Where there’s a will, there’s a way
However, marriage alone does not guarantee full protection. Having a valid and properly drafted will is equally essential.
This ensures that your assets are distributed according to your intentions, protects your partner and beneficiaries, and enables available inheritance tax allowances to be fully utilised.
At Kingswell Watts we understand the disputes that can arise amongst your nearest and dearest. We are here to give you good practical advice and safeguard your wishes.
Call us today for a competitive quote for your Will on 01924 461236 or email danyal.abubaker@kingswellwatts.co.uk.
