Navigating inheritance tax for unmarried couples

In the realm of estate planning, unmarried couples in the UK often face unique challenges when it comes to navigating the complexities of inheritance tax (IHT). Unlike married couples or civil partners, who benefit from certain tax exemptions and allowances, unmarried couples must carefully consider their options to ensure their assets are protected and their loved ones provided for according to their wishes.

IHT is levied on the estate of an individual upon their death, subject to certain exemptions and allowances. Unmarried couples do not benefit from the same tax exemptions available to married couples or civil partners, which can result in higher tax liabilities if proper planning is not in place.

Utilising Nil Rate Bands

Everyone in the UK is entitled to a nil rate band, which allows a certain amount of their estate to be passed on tax-free upon their death. As of the current tax year, the nil rate band stands at £325,000 per person. Unmarried couples can maximise this allowance by ensuring that their assets are distributed efficiently to make the most of each partner's nil rate band.

Consideration of the Residence Nil Rate Band (RNRB)

The Residence Nil Rate Band (RNRB) is an additional inheritance tax allowance that applies when passing on a main residence to direct descendants, such as children or grandchildren. While initially designed to benefit married couples or civil partners, unmarried couples can still potentially benefit from this allowance by carefully structuring their estate planning arrangements.

Making Use of Trusts

Trusts can be a valuable tool for unmarried couples in mitigating inheritance tax liabilities and ensuring assets are distributed according to their wishes. By establishing trusts within their estate planning, unmarried couples can protect assets, provide for their partners and other beneficiaries, and potentially reduce the overall IHT burden.

Seek Professional Advice

Given the complexities of inheritance tax and the unique considerations for unmarried couples, seeking professional advice from an independent financial adviser is essential. We can provide bespoke advice based on the individual circumstances of couples, always taking a holistic approach.

If you would like a complimentary estate planning review, please don’t hesitate to get in touch by calling 0117 3636 212 or emailing office@haroldstephens.co.uk.