Love, Taxes, and Tying the Knot: Navigating the Intersection of Marriage and Inheritance Tax

13th February 2024 | Nicole Marmor | Intersection of Marriage, Inheritance Tax, Tying the Knot

As Valentine’s Day approaches, love is in the air, and many couples find themselves contemplating the next step in their relationship.

For some, this involves considering the legal and financial implications of marriage. Beyond the emotional and romantic aspects, individuals may question whether tying the knot is a strategic move to save inheritance tax.

Marriage has long been considered a union founded on love, trust, and commitment. Choosing a life partner based on shared values, emotional connection, and mutual support is a timeless concept that transcends financial considerations. Whilst love is invaluable, couples may also find themselves facing practical questions about shared finances, joint assets, and planning for the future.

One financial consideration that arises in the context of marriage is inheritance tax (IHT). In many jurisdictions, married couples enjoy certain tax benefits, including exemptions and deductions related to inheritance. However, it is crucial to approach this aspect of marriage with a clear understanding of the laws and regulations governing IHT in your specific location as these can vary from country to country.

It is a widespread misconception that cohabiting couples enjoy the same legal rights as their married counterparts. In reality, cohabiting couples possess minimal rights, even if they share children. In the unfortunate event of a partner passing away without a will, the surviving partner inherits nothing.

Living in a deceased partner’s property or jointly owned property does not guarantee security- the surviving partner could face eviction or the forced sale of their home. They may be forced to bring a claim on the estate which could prove difficult if the beneficiaries of the estate are the unmarried couple’s children. Additionally, complications may arise if a person dies while cohabiting with a new partner amid an ongoing, yet unfinished, divorce, potentially leading to disputes with the family.

Having a Will in place does not exempt one from IHT if the deceased’s estate surpasses the IHT threshold. However, for married or civil partnership couples, the spouse exemption allows the transfer of assets upon death without incurring inheritance tax. While standard IHT applies to the estate exceeding £325,000 in value, married couples benefit from an exception that disregards this threshold, eliminating the need to pay IHT for the surviving spouse or civil partner.

As Valentine’s Day approaches and couples contemplate taking their relationship to the next level, the intersection of love and finances becomes more apparent. Whilst the allure of potential tax benefits may be enticing, it is crucial to approach marriage with a holistic perspective.

Should love not be the driving force behind such a significant decision, with legal and financial considerations serving as complementary elements?

To find out more, email Nicole here.