Inheritance Tax, Marriage and Civil Partnerships
Marriage has always had a special place in the eyes of the law, with the financial affairs of a married couple often being seen as conjoined. Since 2004 this same situation, which is often beneficial when it comes to taxation has been conferred on same sex couples, providing that they have applied to have their partnership recognised by the registration authority.
In some cases (such as in divorce and remarriage) it pays to be aware of the laws regarding Inheritance Tax.
There is a popular misconception that if a couple has lived together for more than a certain amount of time (it is often said two years) then they enjoy all the benefits of marriage in law, including in regard to inheritance tax. Be warned that this is not the case and that ‘common law’ is a colloquial term with no application in the British legal system. If you are living with a long term partner they have no right to your Estate unless you specify in your will that they receive some of the Estate. Historically, common law marriage had been recognised up until the 18th Century in the U.K. Canada and Australia still recognise some for of common law marriage.
Inheritance Issues and Legal Partnership
Married persons and Civil Partners enjoy a special status with regard to Inheritance Tax issues. Above all, it must be noted that all of a persons Estate will pass tax free to their wife, husband or civil partner upon their death. In a persons lifetime any gifts they make to their marriage or civil partner will be free from tax. This has its uses, but do note that anything will be subsequently taxed when that partner dies (except in the event that they have married): Effectively, in this case passing on wealth or goods to your partner will incur more tax in the long run than successfully passing on the same gifts to children, providing you live for a full seven years after the gift is made.
If you are separated from a married partner your estate will still pass to them and this is something notoriously difficult to change. For this reason, divorce is really the best option in the case of an irrevocable relationship breakdown (the same goes for Civil Partnerships).
If you divorce any will in existence may need to be redrawn, although you will be assured that your estate will not pass automatically to your ex-wife or husband under the standard laws regarding inheritance.
If you marry or remarry the terms of any will previously made are nullified and your marriage or new marriage takes precedence. In this case you may want to draw up a new will to ensure that your children benefit should you die (otherwise your estate may pass to someone relatively unknown to them, who has no obligation to pass it on to them in the event if their own death. If you are not careful your estate could end up passing to your new partners children!
See related article in changes to Inheritance Tax law for more information regarding tax, marriage and Civil Partnership.