How marital status affects inheritance tax

This article is an extract from Octopus Investments' publication "A guide to untangling inheritance tax" and it is reproduced with its permission. Read more about Octopus Investments

The article has been written in accordance with Octopus Investments’ understanding of the law and interpretation of it at the time of publication: remember tax rules can change and benefits depend on circumstances.

How the inheritance tax rules apply will differ depending on whether you are single, married or in a civil partnership.

Single

If you’re single and your estate is worth more than £325,000, anything over that amount will be liable for up to 40% inheritance tax.

Married/Civil partnership

If you’re married or in a civil partnership, the assets you leave to your spouse will be transferred without any inheritance tax to pay. Also, leaving assets to a spouse does not use up your nil-rate band.

If you pass on any of your estate to someone other than your spouse or civil partner, and your estate is valued at more than £325,000, then the excess will be subject to up to 40% inheritance tax.

The estate of your surviving spouse, now widowed, will be subject to inheritance tax as outlined below.

Widowed

When someone dies, their unused nil-rate band can be transferred to their spouse or civil partner.

For example, if your spouse left everything to you before they died, you could potentially have a combined nil-rate band of £650,000 applied to the value of your estate.

How inheritance tax is calculated after a spouse has passed away

John Smith dies, leaving his entire estate to his wife Jane £500,000
Jane now has combined assets
(£500,000 + £450,000 of her own)
£950,000
Subtracting the combined nil-rate band
(£950,000 - £650,000)
£300,000
(Jane Smith’s taxable estate)
Jane Smith’s estate would be taxed at 40% £120,000 inheritance tax bill
(£300,000 x 40%)

Unmarried couple

If you are part of an unmarried couple, you are still treated as single for inheritance tax purposes.

This means that each of you has a separate nil-rate band of £325,000 which cannot be combined upon death.

Beneficiary – the person (or people) who receives an inheritance when someone dies, or benefits from a trust.

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Important: This article is intended solely to provide basic information – neither Octopus Investments nor Wealth Club offer tax advice. If you are unsure, please seek specialist advice. Investments that qualify for inheritance tax relief place your capital at risk, and the value of the investment can fall or rise.


Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

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