Thinking about leaving everything to your spouse?

ashtons, louise cardwell, 

On death, we are currently each entitled to £325,000 which is exempt from Inheritance Tax, known as the Nil Rate Band. When the estate is passed between spouse and civil partner as either an absolute gift or on life interest trust, there is no Inheritance Tax to pay and therefore the £325,000 Nil Rate Band is unused. This is then available to be transferred to the surviving spouse’s estate on their death, with the potential of £650,000 being free from Inheritance Tax on the second death. 

As of 6 April 2017 there is also another allowance known as the Residence Nil Rate Band which you may be able to offset against the value of your home. This extra allowance starts at £100,000 and increases each year until a maximum of £175,000. This is also transferable between spouses, however there are strict conditions that must be fulfilled.

Although leaving everything to your spouse as an absolute gift may seem an attractive option, there are some issues with it. The surviving spouse would have complete control over your assets - for example, they would be able to remarry and create a new Will leaving all of your combined estate to their new spouse. Another issue is that the estates value would be taken into consideration when assessing the survivor’s ability to fund care home fees or when looking at how much Inheritance Tax may be payable on their death. 

An alternative to the above would be to leave a Will including a Life Interest Trust. This would mean that your spouse would be entitled to the income from your estate for the rest of their life but ultimately the capital is preserved for your children and/or nominated beneficiaries. 

Louise Cardwell
T: 01473 849949
E: louise.cardwell@ashtonslegal.co.uk

Louise is an Associate Solicitor specialising in private client matters.  She is a member of Solicitors for the Elderly, a member of the Society of Trust and Estate Practitioners and is working towards the Association of Taxation Technicians qualification.