Not married (but higher earner) - inheritance tax etc?

[ecuse]

I'm not married to my DP. For various reasons which aren't the subject of this thread, we are happy to remain unmarried for now.

I'm not worried about protecting my own interests with marriage - I am the main earner, he is a SAHD with no income.

I am worried about what happens if I die. At the moment, my will leaves everything to him as he will then be a single non-working parent with sole care of our DD (currently aged 3) and soon-to-be-born DC2.

The value of my estate is approx £530k of which £160k is equity in our property (currently solely in my name) and the remaining £375k is life insurance.

That sounds like a lot, but if I died tomorrow, I wanted him to be able to pay off the mortgage so they always have a roof over their heads, and have a small ongoing income of about £10k pa until the kids are teenagers so that they can get by with him just working part time.

However, because we're not married, he would face an IHT bill of about £85k. This wipes out about half of what remains after the mortgage is paid off.

Is there any legal way around this other than getting married?

As far as I understand the IHT implications would be the same if left the money to kids rather than DP. I can't gift anything now as I don't actually have any of that money now (my DP will be much better off with me dead than alive!).

Putting DP on the mortgage as joint tenant would reduce the bill, as only half of the equity goes into the estate, but it doesn't get rid of the problem as the life assurance payout in itself is over the threshold.

I'm not generally a tax avoider, and I passionately believe in IHT. If I die when my kids are adults I expect them to pay up and not complain! But I'm really worried that the IHT will be creaming off money I think they will reasonably need to live on if I die when they're minors.

Final question - assuming I might need advice from an expert, who do I need? A solicitor or a financial advisor?

Would the life insurance definitely fall within your estate? Odd question I know, but in many cases life insurance is structured such that it's held in trust (or something!), and goes direct from the life insurance company to your partner / your kids, and the lump sum doesn't then form part of your estate at any point. Might be worth checking.

If this were the case, then only the equity in your house would be subject to IHT, and as it's below the threshold, the amount payable should the worst happen would be £0.

Good question. I had read that it did, but this may be something worth raising with a solicitor.

I would talk to a solicitor. I'd have thought that making him a joint owner of the property would be sensible but yes, anything over the threshold would be liable for IHT. It's a big part of why gay people fought tooth and nail for civil partnerships.

I think that the life insurance can be put in trust for him, so you should be fine once that's sorted out.

If you "passionately" believe in IHT, then it would be wron to fo againstyou principles and seek to avoid it.

What seems to square with your principles would be seeking specialist insurance so it can be paid but which mitigates impact on your survivors.

It is the difficulties that payment of IHT would have if both parents (whether married or not) died together and the effects of IHT on the estate that needs to provide for their DC that makes me decidedly 'anti' IHT (especially given house prices in many parts of the country).

You could, but I wouldn't support it as I prefer simple not complex tax.

MNetters who support IHT will no doubt appear and tell OP that what she is proposing is tax avoidance and she shouldn't do it. Because such insurances aren't government backed (like ISAs) but are a financial sector product designed to minimise tax otherwise payable.

To clarify - I believe in the principle of IHT insofar as parents giving 'nest egg' type inheritances to their children. What I'm talking about is making basic provision for the living costs of my children if I die when they're minors. As I say, if they were adults then I'd take the tax hit :)

If some of it goes into trust you will still be taxed on it. Putting money into trust does not make it tax free.

The only way to completely avoid inheritance tax is to marry. You could minimise it by being joint tenants on the mortgage.

Joint tenancy does not mean the value is not calculated for IHT - but you are within the value, a common misconception.
Creat a trust and direct the IHT to it (or use the in house trust provided by the insurance provider) and it WILL be outside of your estate. The transfer of value for IHT is taken now and unless you are ill the value is negligible. You need an IFA that has an estate planning qualification.

All assets are transferred to a married spouse tax free. There is no other way to get an inheritance tax free transfer.

Trusts are way more complicated then is let on and require a 10% tax payment of the value of the trust every 10 years or when the trust is closed. They also charge capital gains tax on any property held in them when it is sold.

Solicitors are a waste of time other then for drawing up wills, they do not understand the tax system at all!

Most life insurance polices are paid outside of the estate. I'd call the provider to double check but it would be bad advice if it wasn't the case.

rufus that's actually incorrect! totally incorrect!
One, that's only certain types of trust.
Two, you've not accounted for the NRB on the 10yr charge and it's not even 10%.
Three, a trust also pays CGT, but so does an individual. A trust has a CGT allowance and when managed you would exercise this in order not to build up a charge.
To not use a trust for life insurance would be foolish in the OP situation and very costly to her family.
Trusts are not complicated when you get advice from someone who is professionally qualified - a chartered financial planner for example.

puggy no insurance is paid outside the estate unless it is set up to do so, in fact most isn't (another industry scandal). As you say this is indeed bad advice, but this can easily be rectified (should not cost unless you are already ill).