Can my wife claim my inheritance tax allowance as well as her own if I die first?

27 May 2020

Q

I regularly read Moneywise articles but cannot find an answer, either here or elsewhere, about inheritance tax (IHT) when both my wife and I die.

I intend to leave all of my estate to my wife; it is below the £325,000 threshold so hopefully there’s no inheritance tax to pay.

However, when my wife dies the value of the estate will then exceed £325,000. Will inheritance tax then kick in or is her threshold level increased to £650,000 because we are a married couple?

From
MF/via email

A

The current nil-rate band is £325,000. This is the amount that somebody’s estate can be worth when they die, before it becomes liable to pay inheritance tax (IHT).

There are special rules for UK residing married couples, such as you and your wife, and registered civil partners. They are allowed to pass assets to each other during their lifetime and when they die without having to pay IHT, no matter how much they pass on. This is known as the spouse or civil partner exemption. It means that if you die and leave all of your assets to your wife, you haven’t used any of your nil rate band.

The survivor of a marriage or civil partnership – your wife if you die first – can claim up to 100% of their partner’s unused nil-rate band, as well as their own entitlement, which provides an allowance of up to £650,000. 

Also, the residence nil-rate band, introduced in April 2017, is available to individuals who pass on a residence to direct descendants such as children, grandchildren, stepchildren, adopted or foster children. It is currently £150,000 per person, and will increase to £175,000 from April 2020. Like the nil-rate band, if it’s unused, it can be transferred to a spouse or civil partner on death. 

Patrick Connolly is a certified financial planner at Chase de Vere

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