Inheritance tax: Britons may have to sell family home to cover bill

Inheritance tax: Expert provides tips on avoiding hefty bill

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Inheritance tax is set at 40 percent above a particular threshold, and must be paid fairly promptly once a person dies. The tax is commonly loathed by many, however, it is cohabiting couples which could full the full force of IHT – even if they have been together for decades. spoke exclusively to Mark Collins, Head of Tax at Handlesbanken Wealth Management, who warned of the difficulties unmarried couples may face.

He said: “A co-habiting couple will not benefit from the inter-spousal exemption.  

“Assets passing between spouses are exempt for inheritance tax purposes, however, there is no such exemption for assets passing between unmarried individuals.  

“This means that inheritance tax will arise on the value of a deceased’s estate above any available nil rate band and residence nil rate band (if applicable), even if assets are left to the surviving partner.”

Mr Collins warned to meet the IHT liability, the surviving partner may have to take drastic action.

This could have a palpable impact on the remainder of their life, and disrupt the status quo significantly.

He explained: “In extreme cases, it could force a sale of the main residence of the surviving partner.

“They may have to downsize, should there not be sufficient other assets in the estate to fund the tax due on the deceased’s estate. 

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“However, this rarely happens in cases where most or all assets are left to the surviving spouse. This is because IHT due on these assets does not crystallise until the ‘second death’.”

Another key issue unmarried couples will face is not being able to benefit from transferring any unused nil rate band or residential nil rate band.

This is likely to create problems where unmarried couples cannot slash their tax bill as efficiently as those who are married or civilly partnered.

Mr Collins continued: “Currently, spouses can pass on the percentage of their unused nil rate band and residential nil rate band to their surviving spouse.  

“This then allows the surviving spouse to have a greater portion of their estate taxed at zero percent.

“Unmarried couples do not benefit from this. If they do not fully utilise their nil rate band and residential nil rate band, then the unused portions are lost.  

“This puts unmarried couples in a worse position than if they were married or in a civil partnership.”

Finally, another problem for unmarried couples presents itself in relation to passing on assets to later generations during one’s lifetime.

Many people have come around to the idea of a living inheritance, as it allows them to see their children or grandchildren enjoy the funds they have passed down.

However, for unmarried couples, the expert has warned complications could easily ensue.

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He added: “There is no capital gains tax exemption for transfers between non-spouses.

“So, it is more difficult to make transfers between each other to take advantage of one spouse paying a lower rate of tax or use of any capital losses in making further gifts to other family members.”

Overall, Mr Collins described unmarried couples as “at a disadvantage” compared to married people in similar circumstances.

The rules surrounding inheritance tax do not appear to be changing any time soon, although both candidates for Prime Minister appear to suggest they will review the levy if they were to come to power.

Consequently, people may wish to consider their circumstances, or speak to an independent financial adviser for assistance. 

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