The Rise of the Deathbed Marriage – Inheritance Tax Considerations
According to reports, the number of so-called ‘deathbed marriages’ has increased in the UK this year. Figures from the Home Office and the Passport Office for the three months to May 2018 show a rise in applications for ‘urgent marriages’, which most often occur in hospitals. One high-profile instance of death-bed marriage involved Sir Ken Dodd, who married his long-term partner, Anne Jones, two days before he died earlier in 2018.
Taking the step of having a marriage ceremony conducted during your last few days or weeks of life is a fairly drastic one. So what are the benefits that come with marriage or civil partnership?
First and foremost, one of the main benefits is that there is no inheritance tax (IHT) to pay on transfers between married couples/civil partners, allowing the surviving spouse to inherit the entire estate with no tax to pay whatsoever. These rules apply provided the surviving spouse retains possession of the entire value of the estate for a minimum of two years (excluding annual allowable gifts). There is no such legislation applicable to unmarried couples in England and Wales.
A second ‘perk’ is that the current law around a deceased person’s estate dictate that individuals can only leave a value of up to £325,000 to their loved ones without incurring any tax. Where a couple are married or in a civil partnership, this allowance effectively doubles as a surviving spouse takes on their partner’s full allowance (providing the first person to pass away leaves all of their assets to their surviving spouse). Again, ‘single’ individuals are not permitted to transfer their inheritance tax threshold.
Furthermore, as of April 2017, an additional allowance known as the Residence Nil Rate Band (RNRB) was introduced for those with direct descendants. Currently at £125,000 per person, this allowance for property owners (primary residence only) is set to increase to £175,000 per person by 2020. This again is transferable between spouses upon first death.
The cumulative effect of these laws is that between them, a couple who are either married or are civil partners have a total of £1 million between them to pass on to children, grandchildren, or ‘direct descendants’. This is clearly not an insignificant sum.
Similarly, unmarried couples do not have any automatic rights to the pension assets of their deceased partner.
The increase in deathbed marriages has led many to call for a change in the law; claiming the laws around inheritance tax and marriage are outdated and unfair to long-term cohabitees. Interestingly, the Office of Tax Simplification is also currently reviewing IHT, with a view to making it simpler for all.
The protection from inheritance tax that marriage / civil partnership affords is a powerful tool when it comes to estate planning. However, this alone is not a reason to formalise a relationship in the eyes of the law.
Even when a couple is married, it is important to remember that where no Will is in place, the rules of intestacy will apply to an estate. Families today are not necessarily as straightforward as they once were, with factors such as second marriages, children from previous relationships, couples without direct descendants all having interplay when it comes to inheritance. Couples therefore need to ensure that their Wills are up to date and accurately record their wishes for what is to happen to their estate on death.
For further advice or assistance on Wills or estate planning, please contact Rebecca on 01457 761320 or email [email protected].
Rebecca O’Donnell is Head of Private Client at O’Donnell Solicitors.