One of the most valuable tax reliefs available to married couples and civil partners is the spouse exemption. In simple terms, assets passing between spouses or civil partners on death are generally exempt from inheritance tax.

This relief can save families substantial amounts of tax and provides flexibility when planning estates. It also allows any unused inheritance tax nil rate band and, where available, residence nil rate band to be transferred to the surviving spouse or civil partner to benefit their own estate.

The importance of the exemption has recently been highlighted by comments from comedian Ricky Gervais, who reportedly stated that inheritance tax planning is one reason he and his long-term partner Jane Fallon may finally decide to marry after more than four decades together. Reports quoted him as saying that tax would be the reason he marries, illustrating a point private client advisers have long understood: tax legislation can have a very real impact on personal decisions.

For unmarried couples, even those who have lived together for many years, the position can be very different. Contrary to popular belief, there is no concept of a ‘common law spouse’ in inheritance tax legislation. Assets passing to an unmarried partner do not benefit from the spouse exemption and therefore face potential exposure to inheritance tax.

The difference in tax treatment can be dramatic, particularly where significant property, investments or business interests are involved. While tax should not be the sole reason for marriage or a civil partnership, understanding the available reliefs allows people to make informed decisions.

At Phillips Law, we advise on inheritance tax planning, wills, estate structuring and the effective use of spouse exemptions and other reliefs. Contact our expert team today by filling out the Contact Us form or emailing: [email protected].

Written by Sarah Parker, Senior Associate, Wills, Trusts and Probate, Basingstoke.