On 11 March 2018 beloved comedian Sir Ken Dodd passed away at the age of 90. He passed away at home, with his new wife at his bedside. He had married his long-term partner, Anne Jones, just two days before his death.
It is understood that one of his final wishes was to ensure that his partner would have the title Lady Anne.
Whilst most make the decision to marry without considering the impact it may have upon their estate, marriage can have considerable legal implications.
For example, marriage can have a considerable impact upon the Inheritance Tax potentially payable by an estate.
The fact that Anne is now his wife may ultimately benefit the estate in terms of inheritance tax liability.
The current threshold for Inheritance Tax is £325,000 – this is known as the “nil rate band”. If the value of your estate is below the threshold, then no Inheritance Tax is payable.
If your estate is over £325,000 then your estate is potentially liable to pay Inheritance Tax. The standard Inheritance Tax payable on estates is 40% of the value of the estate over the threshold. Given the high percentage of the tax, large estates could face a substantial tax liability.
There are various exemptions which can be used to attempt to minimise the Inheritance Tax payable by an estate.
One such exemption is spousal exemption. Transfers between spouses or civil partners are exempt from Inheritance Tax, therefore the estate passing to a spouse or civil partner on death would be exempt from Inheritance Tax.
It is also important to note that if an estate is transferred to a spouse or civil partner, and is therefore exempt from Inheritance Tax, then that individual’s nil rate band has not been used. This can actually be transferred to the estate of the surviving spouse or civil partner. Accordingly, when the surviving spouse or civil partner dies, they would have their own nil rate band and the previously unused nil rate band. As such, the second estate may have up to £650,000 exempt from Inheritance Tax, which is likely to provide substantial savings to the estate, or potentially mean that the estate is exempt from Inheritance Tax altogether.
For individuals such as Sir Ken Dodd, the decision to marry would have significant benefits to their estate in terms of Inheritance Tax. Spousal exemption is significant in terms of estate planning and minimising the Inheritance Tax which may be payable by an estate. It also increases the threshold of inheritance tax available to the surviving spouse or civil partner’s estate. Unfortunately, these estate planning tools are not available to couples who live together, even if they had been together for over 40 years like Sir Ken Dodd and Anne Jones!
It is important to remember that if you wish to transfer your whole estate to your spouse or civil partner, then you should prepare a Will. If a person dies without leaving a Will, then the law decides who is to inherit the estate, and it may be that some of the estate falls to other beneficiaries, such as children. This may not make the most effective use of the exemptions available to an estate to minimise any potential Inheritance Tax liability.
We would always recommend that individuals obtain expert advice with regard to their estate, and obtain advice which is tailored to their needs to avoid any potential legal pitfalls.
If you are concerned that your estate may be subject to Inheritance Tax, or you wish to receive estate planning advice, you can get in touch with one of our specialist solicitors on 0800 089 1331 who will be able to provide you with further information. Our solicitors provide clear, detailed advice, and can allow you peace of mind that you have planned for the future.
Blog by Amy Wardrop, Solicitor