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Inheritance tax for married couples and civil partners

Married couples and civil partners can make use of each other’s tax-free allowance without special tax planning

In this article
What are the inheritance tax rules for married couples? How the rules work for married couples Inheritance tax on property for married couples Using a will for inheritance tax planning
Restrictions on transfers for married couples Estate duty limits until 1974 Can spouses inherit Isas tax-free? Frequently asked questions

What are the inheritance tax rules for married couples?

There are major benefits to being married or in a civil partnership when it comes to inheritance tax. 

Transfers between married couples and civil partners are not subject to inheritance tax (IHT), so if the first partner to die leaves their entire estate to the other, no tax will be payable. It's also likely that none of their nil-rate band has been used, and the partner will be able to add the unused balance to their own, effectively doubling the threshold.

However, if your partner has left bequests to others (and lifetime gifts made within seven years of death), their estate may attract IHT if it's large enough and may use up some or all of the nil-rate band.

How the rules work for married couples

Couples are able to inherit tax-free from their married spouse or civil partner. They can also apply any of their partner's unused nil-rate band to their own estate.

For example, say your partner leaves up to £162,500 from their estate to people other than you. Given the tax-free allowance is £325,000, only 50% or half of the tax-free allowance would be unused.

If the tax free allowance when you die is £400,000, you would have this full amount, plus the percentage of your partner's unused allowance – which would be 50% of £400,000 or £200,000. This gives you a total tax-free allowance on your death of £600,000.

This applies even if your partner has already died, provided they died after 12 November 1974. For deaths that occurred before this, see our section on restrictions.

Inheritance tax on property for married couples

The transferable main residence allowance that came into effect in April 2017 will increase the amount that can be passed on tax-free. It rose to £125,000 in April 2018, and will continue to increase by £25,000 a year until it hits £175,000 in 2020-21. 

This is in addition to the main nil-rate band. In April 2018, it effectively raises the IHT-free allowance to £450,000.

This will reach £500,000 per person by 2020-21. Where married couples jointly own a family home and want to leave it to their children, the total IHT exemption will be £1m. 

If this allowance is transferred between spouses, the value of the transferred allowance will depend on when the second, not first, partner dies. 

Using a will for inheritance tax planning

Before the current inheritance tax rules came in, it was common to use your will to make sure your tax-free allowance was not wasted.

Within your will, you could arrange for assets or money up to the value of the tax-free allowance to be passed to someone other than your husband, wife or civil partner on the first death, or to be passed to a trust set up in your will from which your spouse could benefit.

However, these arrangements are no longer necessary for most people and may even be disadvantageous. By using the tax-free allowance at the first death, you will lose out on any increase to the tax-free allowance that may occur between the death of the first partner and the death of the second partner.

What's more, as the incoming £175,000 transferable main-residence allowance is only available when leaving property to a child or grandchild, it can't be used if you put assets into trust.

As an alternative, you're likely to be better off using your spouse's tax-free allowance to increase your own nil-rate band.

If you have already set up your wills this way, it may be worth going back to the firm that arranged this for you and ask their advice on how you should proceed in light of the new inheritance tax rules.

Restrictions on transfers for married couples

Inheritance tax was introduced in 1986, replacing capital transfer tax – which originally replaced estate duty. 

The degree to which transfers between spouses were tax-exempt differed from today, meaning the estate of a surviving partner will be taxed differently, depending on the date their partner died. In cases of doubt, it may be worth checking the exemption allowable with a tax consultant.     

If your partner died after 12 November 1974

After 12 November 1974, there was no limit to spouse exemption, unless the deceased had their home in the UK and the surviving spouse did not – when it was limited to £55,000. After 6 April 2013, the exemption is the inheritance tax nil-rate band.

If your partner died between 22 March 1972 and 12 November 1974

During this period spouse exemption was limited to £15,000, so the amount of unused allowance you can claim is severely limited. 

If your partner died before 22 March 1972

If your husband or wife died before 22 March 1972, estate duty, rather than inheritance tax was in force. Under estate duty rules up to that date, no transfers could be made tax-free between husband and wife. 

Estates valued at less than a certain amount (this differed depending on date of death) didn’t attract tax, but estates over this amount had to pay tax on the whole value. For those living in England, Northern Ireland, Scotland or Wales, we’ve given the various rates below which no estate duty was charged in the tables below:

Estate duty limits until 1974

Estate duty Limits: England, Scotland and Wales
Date of death Amount below which estate duty wasn't payable
On or before 28 August 1946 £100
Between: 29 August 1946 and 29 July 1954 £2,000
Between: 30 July 1954 and 9 April 1962 £3,000
Between: 10 April 1962 and 3 April 1963 £4,000
Between: 4 April 1963 and 15 April 1969 £5,000
Between: 16 April 1969 and 30 March 1971 £10,000
Between: 31 March 1971 and 21 March 1972 £12,500
Between: 22 March 1972 and 12 November 1974 £15,000
 
Estate duty Limits: Northern Ireland
Date of death Amount below which estate duty wasn't payable
On or before 28 August 1946 £100
Between: 29 August 1946 and 31 October 1954 £2,000
Between: 1 November 1954 and 3 July 1962 £3,000
Between: 4 July 1962 and 21 May 1963 £4,000
Between: 22 May 1963 and 3 June 1969 £5,000
Between: 4 June 1969 and 4 May 1971 £10,000
Between: 5 May 1971 and 21 March 1972 £12,500
Between: 22 March 1972 and 12 November 1974 £15,000

Only one tax-free allowance can be used

Because of the way estate duty worked, people who paid estate duty on their late partner’s estate are treated as having used up any tax-free allowance due. This is despite the fact that tax was paid on the estate and in reality no tax-free amount was passed on.

Under the current rules, when people in this position die, their estate is only entitled to one tax-free allowance. The fact that you can't use their deceased partner’s tax-free allowance could mean a much bigger inheritance tax bill for your heirs.

Can spouses inherit Isas tax-free?

Any money held in an Isa forms part of your estate when you pass away, although your surviving spouse can still benefit from the extra tax protections these accounts offer. 

Since 3 December 2014, bereaved spouses and civil partners have been allowed to re-invest cash and investments held in their partner's Isa, allowing them to take interest dividends and growth tax-free. 

The allowance is called an Additional Permitted Subscription (APS). Be aware that not all Isa providers let people use it, so you'll need to check with your provider that they accept these extra deposits before transferring.

If not, you're free to open another one that does, even if you've used part of your Isa subscription in the current tax year. 

Frequently asked questions

 

Will unmarried partners have to pay inheritance tax?

 

The IHT rules are the same whether you're married or in a civil partnership. But if you're unmarried, or not civil partners, you won't benefit from the spousal exemption.

Any inheritance you receive from your unmarried partner will be subject to inheritance tax if the estate is large enough. You also won't be able to inherit any unused allowance.

As such, being married can bring major tax advantages.

 

How does inheritance tax work if I remarry?

 

If your partner passes away and you remarry, you can still use their unused IHT allowance – you effectively 'inherit' their unused allowance when they pass away.

In most cases, you're still only allowed to benefit from a maximum of two nil-rate bands, including your own (ie a total of £650,000, excluding the additional property allowance).

However, if your spouse had used part of their allowance, you can use the unused bands other deceased spouses or civil partners, providing the total transferable amount isn't more than a single individual's threshold (ie £325,000). 

 

What if my partner dies without a will?

 

When a person dies without a will, the rules of intestacy will apply.

If the person is married or in a civil partnership with no children, their spouse will automatically inherit the estate. In this case, the spousal exemption to inheritance tax would apply and no tax is payable.

If they have children, the first £250,000 of their estate will pass to their spouse. The remainder is divided in two, with half going to their partner and half to their children. The spouse would have an exemption from inheritance tax on the amount they inherit – but the remainder may be subject to inheritance tax and will use up some of the deceased spouse's nil-rate band.

Unmarried partners (not in a civil partnership) have no right to inherit under the intestacy rules, so it's important to write a will that protects your partner.

 

How can you claim your partner's unused nil-rate band?

 

After your partner's death, you'll need to submit a claim to HMRC to have their unused allowance applied to you.

To make a transfer, you can use the HMRC form: Claim to transfer unused nil rate band: Schedule IHT402.

If you're dealing with the estate of someone who has died, you can find out more in our guides to probate.

Step-by-step probate checklist: download our free checklist from Which? Legal Probate to help you through the probate process.

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