I was sorry to hear of the recent death of well-known British entertainer Sir Ken Dodd who was one of the most popular artists of his time, whether he was in the theatre, the charts or on TV. On reading the news, I was interested to note that he died only 2 days after marrying his partner of 40 years, Anne Jones. This may not be of much significance to many, but it will make a huge difference in respect of any inheritance tax due on his estate.
When someone dies it is important to note their marital status as assets passed between spouses and civil partners are exempt from inheritance tax regardless of the value of the asset being transferred.
Inheritance Tax Thresholds
Currently, on death, everyone has an inheritance tax threshold of £325,000, known as the nil rate band (NRB). Anything above this threshold is taxed at 40%. The NRB is transferrable between spouses and civil partners. In addition, homeowners have a residence nil rate band (RNRB) of £100,000 (current rate in 2017-18 increasing each year until £175,000 in 2020-21) which was introduced in April 2017.
What happens if you’re married?
If you are married or in a civil partnership and on the basis you have left your whole estate to your surviving spouse or civil partner, then there will be no inheritance tax to pay on the first death no matter how large your estate is. On the surviving spouse’s death, they can potentially pass on an estate of up to £850,000 free of inheritance tax (but only if they have left an interest in a home to direct descendants who include children, grandchildren, stepchildren, adopted and foster children but not nieces, nephews and siblings).
But we’re not married?
It is very different if you are not married. When the first partner dies, any estate over the NRB will be subject to 40% inheritance tax regardless of who the estate it left to. They will be able to use the RNRB but only if they have left an interest in a home to direct descendants.
Another benefit of being married or in a civil partnership is if you hold money in an ISA. Before 3 December 2014, the ISA tax wrapper was lost and the funds in the ISA were subject to income tax on any interest or dividend income generated or capital gains tax where gains were made. For any deaths since that date, the surviving spouse or civil partner can use the additional permitted subscription (APS). This means that the date of death value of the ISA passes to the surviving spouse or civil partner and they have a one-off opportunity to shelter the value of the deceased’s ISA into an ISA in their name in addition to their own ISA allowance (currently £20,000 in 2017-18). This is not possible if you are not married to your partner.
In 1989 Sir Ken was acquitted following a 5-week trial accused of tax fraud spanning a period of 15 years and involving £825,000. He took up his career again and later made light of his court ordeal, saying “I told the Inland Revenue I didn’t owe them a penny because I lived near the seaside!” So, on death, is Sir Ken having the last laugh now? Whilst the value of Sir Ken’s estate and the contents of his Will are presently unknown, current press reports suggest his estate is worth in the region of £7 million. On the presumption he left everything to his wife, there will be no inheritance tax to pay on his death. Had he died just days earlier before his marriage, the tax position would have been very different and his estate could have faced a tax bill of over £2 million.
There are various conditions that should be noted if you are looking to benefit from the RNRB and so if you require advice on inheritance tax planning or dealing with an executry, please contact the Private Client team at Blackadders or if you require any financial advice please contact Blackadders Wealth Management.