Rishi Sunak grilled on being Chancellor 'with highest tax burden'
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Inheritance tax can be levied on the estate of someone who has died and is passing on their assets. IHT will usually be charged at 40 percent on estates valued higher than £325,000 but there will normally not be anything to pay if everything above the £325,000 threshold is left to a spouse, civil partner or a charity.
Additionally, if a person is married or in a civil partnership and their estate is worth less than the threshold, any unused threshold can be added to a partners threshold when they die.
This could mean thresholds could be as high as £1million.
HMRC have updated their guidance on the definition of spouse or civil partner, as IHT does not define it and so instead the definitions come from general law.
HMRC explained: “Consequently, the exemption applies to transfers between people who are lawfully married to each other at the time of the transfer (this includes same-sex couples from March 13 2014 in England and Wales, December 16 2014 in Scotland and January 13 2020 in Northern Ireland) and to transfers between people who are registered as civil partners of each other at the time of the transfer.
HMRC laid out what constitutes a spouse under their rules, as detailed below:
- People who are legally married but separated
- Parties to a valid polygamous marriage. The marriage confers the IHTA84/S18 exemption on all transfers to all the spouses of the transferor or deceased who qualify under IHTA84/S18. Where the IHTA84/S18 (2) limit applies because of foreign domicile of those spouses (IHTM11033), the total exemption (including any similar lifetime exemptions) may not exceed that limit.
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The following are not spouses
- People who are living together but not lawfully married, however long the relationship may have lasted (in England, Wales and Northern Ireland)
- In Scotland the one form of irregular marriage that has been recognised by Scots law is that by cohabitation with habit and repute. This arises where a man and woman cohabit together as husband and wife and behave towards each other as such for a considerable length of time, so it is generally believed by the society and neighbourhood in which they live, and among their friends and relatives that they are married. They are then presumed to be married, although it is impossible to state precisely the place and a time when they exchanged the consent which is essential for marriage. Marriage by cohabitation with habit and repute was abolished by The Family Law (Scotland) Act 2006. It will remain an issue for the Courts for some time to come, however, since claims can still be admitted if based on a period of cohabitation that occurred before the commencement of the Act. If it is claimed that this common law style of marriage entitles the parties to the exemption under IHTA84/S18 (1) in either a death or lifetime situation you should refer the file to Technical.
- Parties to a bigamous marriage
- People who were formerly lawfully married but divorced before the date of death/transfer
Within the same guidance, HMRC confirmed civil partners are couples who have entered into a contractual partnership formally recognised by law under the Civil Partnership Act 2004 which came into effect on December 5 2005.
The guidance went on to explain how civil partnership rules expanded to include opposite-sex couples and additional changes are on the horizon: “With effect from December 2 2019 the Civil Partnerships (Opposite-Sex Couples) Regulations 2019 extended civil partnerships to opposite-sex couples in England and Wales.
“The Marriage (Same-sex Couples) and Civil Partnership (Opposite-Sex Couples) (Northern Ireland) Regulations 2019 extended civil partnerships to opposite-sex couples in Northern Ireland with effect from January 13 2020.
“On July 28 2020 the Civil Partnership (Scotland) Act received Royal Assent, extending civil partnerships to opposite-sex couples in Scotland and taking effect (with a requirement to give notice of intention) from June 1 2021.”
It should be noted there’s usually no IHT to pay on small gifts made out of normal income, known as “exempted gifts”.
Additionally, there’s no IHT to pay on gifts made between spouses or civil partners, with there being no limit on how much can be shared so long as they live in the UK.
If homes, which often make up the biggest part of an estate, are passed on to husbands, wives or civil partners when a person dies, there will also be no IHT to pay.
Full details on IHT and estate rules can be found on the Government’s website and impartial guidance can be sought from the likes of Citizens Advice and the Money Advice Service.
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