Valentine’s Day is one of the most popular occasions for couples to get engaged. In fact, a whopping 10% of all marriage proposals happen on the 14th of February.* – by Zoe Davies

 

Naturally, Inheritance Tax (IHT) planning will be far from the first item on the agenda for the newly betrothed. But following recent changes to IHT regarding pensions, perhaps there’s now a reason to put down the champagne flutes and pick up the balance sheets.

IHT is based on the value of estates when someone passes away. This includes everything from property and possessions to liquid assets such as cash. If an estate is valued above a certain threshold, the tax will need to be paid.

The first advantage of marriage is that married couples can pay less IHT. The threshold at which the tax kicks in is known as the Nil Rate Band (NRB), and is currently set at £325,000. This means that any part of an estate above this amount is taxed at a rate of 40%. Additionally, if a main residence is left to direct descendants the Residence Nil Rate Band (RNRB) becomes applicable – this is another allowance of £175,000 per person.

Married couples have the advantage of being able to transfer their NRBs and RNRBs between each other, meaning that they are able to pass on property valued up to £1 million free of IHT to their direct descendants – double the number that the survivor of them would have if they were unmarried.

The second advantage is that anything left to a spouse or civil partner – whether it’s gifts given over a lifetime or assets that are passed on after they’re gone – won’t be subject to IHT. It will be a comforting thought knowing that loved ones can inherit without extra tax burdens.

However, there’s a chance that the Treasury will put a dampener on proceedings from 2027. This is the proposed time for pensions to be included as part of estates – putting a cat amongst the pigeons for those planning for the future.

Up until now, pensions have been a good way to pass on assets to loved ones without worrying about IHT. Beneficiaries can receive them tax-free, with just Income Tax to consider when they start accessing the funds. With details being thrashed out in the Treasury, time will tell if there’s a chance that being married may bring another advantage in terms of wealth planning when it comes to pensions. The wedding bells might just become a little louder yet.

Whether you’re married, in a civil partnership or not, and have even moderate savings or assets, it’s a great idea to get some tax and financial planning advice. This can help you find ways to reduce your inheritance tax (IHT) both now and later, so you can pass on as much as possible to your family.

With a little planning, you and your partner could transfer up to £1 million to your loved ones without having to worry about IHT. With options to minimise any tax on the excess. It’s all about making sure your hard-earned resources go where you want them to—your family.

 

*https://education.casio.co.uk/blog/maths-of-love-stats-and-facts-about-valentine-day/#:~:text=10%25%20of%20all%20marriage%20proposals,day%20to%20ask%20the%20question.



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