Unmarried Couples

Inheritance Tax issue

Unmarried couples are disadvantaged for Inheritance Tax (IHT):

• No spouse exemption on first death.
• On second death, only the individual’s nil rate band (£325,000) applies.
• Married couples benefit from transferable nil rate band, potentially saving significant tax.

Example – What Not to Do

George and Alex, unmarried, have estates of £400,000 each and leave everything to each other:

• George dies first → £30,000 IHT.
• Estate passes to Alex → total combined estate £770,000.
• On Alex’s death → £178,000 IHT.
• Total tax bill: £208,000.
• If married → total tax £60,000 (saving £118,000).

Solution – Discretionary Trust Will

George leaves the estate into a discretionary trust instead of directly to Alex.

• Trustees: Alex plus at least one other trusted individual.
• Beneficiaries: Alex and potentially others.
• Trustees control distributions; Alex still benefits in practice.
• Property can remain in the trust with Alex occupying it.

Tax outcome with trust

• On George’s death → £30,000 IHT.
• On Alex’s death → estate above £325,000 taxed → £30,000 IHT.
• Total tax bill: £60,000, the same as if married.

Notes

• The trust may face 10-year periodic IHT, but overall savings are significant.
• Figures change if the couple has children, but trusts still produce notable tax savings.

Next steps

To learn more about trusts and how they can work for you, attend a free seminar or book an appointment.