Can My Spouse or Partner Inherit My Estate Tax Free?

Introduction

When planning your estate, one of the most important questions to consider is how much of your estate your spouse or partner can inherit without paying tax. In the UK, the answer depends on your relationship status and how your estate is structured.

The good news is that married couples and civil partners can usually pass their entire estate to each other free of Inheritance Tax (IHT). However, this does not apply to unmarried partners or cohabiting couples, even if they have lived together for many years. This article explains how Inheritance Tax works for spouses and partners, what exemptions are available, and how to ensure your estate passes on tax efficiently.

How Inheritance Tax Works

Inheritance Tax is paid on the total value of a person’s estate when they die, which includes property, savings, investments, and personal belongings. The standard Inheritance Tax rate is 40%, charged on the portion of the estate above the available allowances.

Everyone has a tax-free threshold known as the nil-rate band, which is currently £325,000 (2024 25 tax year). If your estate is worth less than this, there is no IHT to pay.

If it exceeds £325,000, the excess may be taxed at 40%, unless certain exemptions or reliefs apply.

Spouse and Civil Partner Exemption

If you are married or in a civil partnership, you can leave your entire estate to your spouse or partner tax free, regardless of its value. This is known as the spousal exemption.

The exemption applies to:

• Money, property, or assets left directly to your spouse or civil partner.

• Gifts made to your spouse during your lifetime.

There are two key conditions:

1. You must be legally married or in a registered civil partnership at the time of death.

2. Your spouse or partner must be UK-domiciled, or the exemption may be capped (explained below).

This exemption allows many couples to delay Inheritance Tax until the second partner’s death, giving families time to plan or restructure assets.

Passing on Unused Allowances

When one spouse or civil partner dies, any unused portion of their £325,000 nil-rate band can be transferred to the surviving partner.

This means the survivor’s estate could benefit from up to £650,000 of tax-free allowance when they die.

In addition, there is the residence nil-rate band, which applies if you leave your main home to direct descendants (such as children or grandchildren). This provides an extra £175,000 per person and is also transferable between spouses, potentially raising the combined allowance to £1 million for a married couple.

Example Scenario

John and Sarah are married. When John dies, his estate is worth £600,000. He leaves everything to Sarah, so no Inheritance Tax is due because of the spousal exemption.

When Sarah later dies, her estate is worth £1.2 million. She leaves her home to their children. Sarah’s estate benefits from:

• Her own nil-rate band of £325,000

• John’s unused nil-rate band of £325,000

• Her residence nil-rate band of £175,000

• John’s transferred residence nil-rate band of £175,000

This gives a combined total of £1 million tax free. In this case, only the remaining £200,000 of the estate would be subject to Inheritance Tax at 40%.

What About Unmarried Couples?

Unmarried couples, including long-term partners who live together, do not qualify for the spouse exemption. This means:

• If one partner dies, any inheritance left to the other is potentially subject to IHT on amounts above £325,000.

• Each person’s estate is treated separately, and their allowances cannot be combined.

For example, if an unmarried partner inherits a property worth £500,000, they may have to pay tax on £175,000 (£500,000 £325,000).

To reduce exposure to IHT, unmarried couples can:

• Make use of both individuals’ nil-rate bands by splitting ownership of assets.

• Use gifts and lifetime planning to transfer wealth gradually.

• Consider marriage or civil partnership if tax efficiency is a priority.

International Couples and Domicile

If one spouse is not UK-domiciled, the spousal exemption may be limited. Currently, the exemption is capped at £325,000 unless the non-UK-domiciled spouse chooses to be treated as UK-domiciled for tax purposes.

This election can increase the exemption to cover the full estate but may expose the overseas spouse’s worldwide assets to UK Inheritance Tax, so professional advice is essential.

Lifetime Gifts Between Spouses

Transfers and gifts between married partners are also exempt from Inheritance Tax, provided both individuals are UK-domiciled.

For example:

• You can transfer property, savings, or shares to your spouse at any time during your lifetime.

• These gifts are immediately free of IHT and do not count towards the seven-year rule that applies to gifts made to other people.

This exemption allows couples to balance ownership of assets and plan their estates more efficiently.

Planning for the Second Death

While no Inheritance Tax is due when the first spouse dies, tax can become payable when the second partner passes away and the estate is passed to children or other beneficiaries.

To reduce the impact, couples can:

• Make use of trusts to control how assets are passed on.

• Leave gifts to charity (charitable legacies can reduce IHT to 36%).

• Review wills regularly to ensure allowances and reliefs are maximised.

Proper planning ensures that the combined allowances and exemptions are used fully and that unnecessary tax is avoided.

The Role of an Accountant or Estate Planner

An accountant or estate planning adviser can help you:

• Confirm eligibility for the spousal exemption.

• Transfer unused allowances correctly.

• Calculate potential IHT liabilities.

• Structure your estate to make the most of available reliefs.

• Advise on cross-border issues if one partner is not UK-domiciled.

Professional advice is especially important for couples with complex assets or properties held overseas.

Conclusion

If you are married or in a civil partnership, your spouse or partner can inherit your estate tax free, thanks to the full Inheritance Tax exemption for transfers between spouses. They can also inherit your unused allowances, potentially giving them up to £1 million in tax-free thresholds when they pass their estate on to children.

Unmarried partners do not benefit from the same exemption, so they must plan carefully to minimise tax exposure. Reviewing your will, understanding your allowances, and seeking professional advice can help ensure your estate passes smoothly and efficiently to those you love.