Inheritance tax and NHS death in service lump sum

[Cashpoorequityrich]

Name change as I’ve discussed this with colleagues recently.

DP and I aren’t married. Don’t have much, no savings to speak of and a second hand car in my name. However, our house has just topped £400k (south east England, I know it’s ridiculous) so in theory if one of us dies the other gains their half of the house. We’ve ensured this will happen legally (joint tenants, joint wills etc). I know the inheritance tax threshold for unmarried couples is £325k so wasn’t worried as my half of the house at £200k isn’t anywhere near this.

However, a chat with a colleague recently had me wondering about my death in service lump sum. DP will get my lump sum as well as the survivor pension. The pension shouldn’t be IHT liable, from what I can find, but the lump sum I’m not so sure about.

The NHS scheme is non-discretionary rather than discretionary, which my colleague says means it’s IHT liable. My lump sum death in service payout is 100k. I’ve read round it lots but can only see “may be liable” rather than a definite is, and I was wondering if anyone had experience of the death in service lump sum being subject to inheritance tax? Just want to know so we can accurately reassess our options (marriage, basically!) if required.

It’ll only be an issue if the house goes up in value another 50k, but that might only be a few years away. Worse problems to have, I’m aware, but it’s theoretical money as we aren’t moving anywhere.

Thanks for any advice.

I’d be surprised if the NHS lump sum is non-discretionary, they set them up to avoid inheritance tax. Getting married is a no-brainier if you’re thinking about one of you dying. You also get the Bereavement Support Payment and absolutely everything is easier if you’re the legal next of kin. His family could legally shut you out of funeral planning too.

Civil Service is discretionary IIRC but some schemes do have weird provisions, so it wouldn’t surprise me either way.

We’ve dealt with the funeral and legal aspect of that via our wills, but thank you.

Your colleague is correct. The NHS death in service lump sum is classed as part of your estate for the IHT calculation because they have to follow your nomination (if you've made one).

Depending on your age however once you have accessed your NHS pension cash lump sum it is largely forfeit (although then the cash lump sum is in your estate).

You have a standard Nil Rate Band (currently £325k) which can be offset against the value of your total assets. Bear in mind that this includes everything you personally own, not just the value of your share of your property. If you make any gifts that are outside of annual exemptions in the 7 years before your death this Nil Rate Band is reduced.

The extra £175k people have alluded to is the Residence Nil Rate Band. Your executors can only claim this if you leave your share of the property to a direct descendant I.e. children/grandchildren.

Transfers between unmarried partners are not exempt from IHT in the same way that transfers to spouse/civil partners are so anything you leave to them has the potential to be taxed (above the £325k).

If you were married, anything your surviving spouse inherits from you is exempt from IHT. The second to die can also inherit any unused Nil Rate Band/Residence Nil Rate Band to offset against their estate in the end, which in some circumstances can mean up to £1m can be passed on IHT free.

Estate planning is a complicated area of advice and a lot of factors come into play, including your Will arrangements, whether you are UK domiciled, any children, etc etc.

I would recommend you take professional advice to make sure you are in the best position for you.

Avoiding IHT is exactly why we decided to get married. We had lived together a good long while and I was reassured that he wouldn't change, that we would remain equal partners.

No need for any fuss, registry office and two random witness. Nice lunch out together afterwards or not even that

Which you work out the cost saving in IHT , it's a great thing to do.

Excellent thank you @CantSayNothing That all makes sense and ties in with what colleague alluded to.

I think in the next year or so we probably need to think carefully about what we do here then. Suspect marriage or civil partnership is way forward.

@FinallyHere that would be our perfect way of doing it, but family on both sides would be so upset that we’d have to do something at least a bit more formal. Which is one reason we haven’t done it……!

If either my mother or his mother found out we’d done it and not told them, there would be nuclear level fallout. 😂 I couldn’t do that to them. As with many things in life, I think a compromise will have to be found. We still have some time to think as I don’t think I’ll tip over the threshold for another year or two.

@Cashpoorequityrich my MIL had a civil partnership with her (male) partner for similar reasons - she didn't want to get married again, didn't want the potential family fallout of calling it a marriage without having a wedding, so they had a civil partnership at the registry office. Very low key and she was able to tell nosy relations that they didn't actually get married!

Oooooooooo, I like this! Might run this idea past DP and see how he feels about it.

OP if you were married your part of house would pass to your DH and not count for IT purposes. As not married it will count. Why not get married quietly at a registry office? You don't even have to tell anyone if you didn't want to.

FinallyHere that would be our perfect way of doing it, but family on both sides would be so upset that we’d have to do something at least a bit more formal. Which is one reason we haven’t done it……!

I hear you, oh how I hear you about families having different ideas to the couple involved 😁

The pertinent question is, though, how your family would ever find out?

It honestly doesn't make any difference to anything until you file for probate after the first death. Even then, assuming you have each named each other executors and beneficiaries in your wills, "I don't have to pay IHT on what I inherited" doesn't ever have to be a topic of conversation with anyone not directly involved.

It's easy to forget that one of the benefits of adulting and paying taxes is exactly that you get to do what you want.

I was in my forties before deciding to get married. I floated the question of perhaps, fully expecting the sort of toes my sister had been subjected to and was acting bit disappointed when both mother and father heaved an audible sigh of relief and made not trouble about anything, they were so glad to get me off their hands.

Wish I hadn't told them now.

Just seen the post about civil partnership.

Absolutely, we would have gone for that but it was single sex only in those days.

Jot wanting to rain on your parade, is the issue about being able to dissolve the civil partnership been resolved. That was a thing in the very early days.

Yes I’ve had a look on the gov website this morning and civil partnership no issues now, all very straightforward.

Problem is while I’m not adverse to not telling anyone ever, DP is a very honest person and can’t tell a lie to save his life 😂 He wouldn’t feel right lying if directly asked, and he’d be bright red and stammering if someone joked about it. Bless him. As the civil partnership thing wouldn’t be a lie that might work.

It shouldn’t make a difference what family think, and if I hated my family or his it would be easier, but in very un-mumsnetty fashion we all have great healthy relationships and I’d prefer not to really upset them over the one thing we disagree on.

Civil partnership and just invite immediate family to witness and have a nice meal afterwards? Might mean you can get away from a “wedding” without upsetting the respective mothers.

Friends of mine did similar recently - seemed to work quite well!

Might be the easy way to resolve this financially and familiarly.

You haven’t you know. That’s not legally binding. If you’re not married his family can ignore all funeral wishes in the will.

The executors appointed in a will are considered the decision-makers with regards to funeral arrangements and what happens to the body. I’m his executor.

It's £127 to get married and you don't have to tell anyone. Just get two witnesses and do it. It's so much easier 😆