As a seasoned Chartered Financial Advisor, I recently engaged in a thought-provoking conversation with an unmarried couple who held a mistaken belief about their status in relation to inheritance tax (IHT).
Unmarried couples do not have the same IHT benefits
This encounter shed light on a prevalent misconception among unmarried couples regarding how they would be treated in matters of inheritance tax compared to their married counterparts.
During our chat, it became evident that the couple assumed they would be accorded the same inheritance tax privileges as if they were married.
This misconception can have significant implications for financial planning, and it is crucial to address such misunderstandings to ensure individuals make informed decisions about their financial future.
IHT Exemptions and Allowances
In the realm of inheritance tax, marital status plays a pivotal role in determining exemptions, allowances, and the overall tax treatment of an estate.
Unmarried couples, unfortunately, do not enjoy the same automatic advantages as married couples when it comes to inheritance tax planning.
This underscores the importance of seeking professional advice tailored to one’s unique circumstances.
As an Adviser, I emphasise the need for unmarried couples to proactively address their financial situation and consider strategic planning to mitigate potential inheritance tax liabilities.
As in this circumstance I suggest:
- A cohabitation agreement to agree the division of assets should they separate.
- Make a Will to agree who the assets will be left to and the rights of the surviving unmarried partner in relation to the property.
- An agreement stating the property ownership (to maximise residence NRBs).
- Consider using a protection policy in trust (to contribute to any IHT liability).
Every situation is unique
It is not uncommon for individuals to assume that societal norms or personal expectations automatically translate into legal and financial entitlements.
However, the intricacies of inheritance tax laws necessitate a careful examination of each couple’s specific situation.
My role is to educate and guide my clients, ensuring they fully understand the implications of their financial decisions, especially in areas as critical as inheritance tax, so they can make informed choices that align with their unique circumstances.
Share with family and friends
If this doesn’t apply to you, I’m sure you know a couple who is in this situation. In that case please send them the link to this blog post, so they too may be correctly informed. I’m sure they’ll thank you for it.
And if this does apply to you and you’d like a chat about your unique circumstances, please either book a meeting, give me a call on 01372 275098 or email chris@corfewealth.co.uk.