Suggest to ExH we enter into a civil partnership to avoid DCs paying IHT

[TemporaryDogMum]

I am looking at this from a purely financial viewpoint, not a relationship/romantic point of view, hence posting in Money Matters.

I got divorced around 15 years ago and am now in a happy and established long term relationship with someone else. I have no plans to marry my current partner and he does not want this either. I have two adult children with ExH who no longer live at home.

I own my own home which is worth around £500K and have a SIPP for retirement plus another £100K or so in savings/investments. I am self employed and hoping to retire in around 8 years time and will drawdown from my SIPP. Current DP is independently wealthy so my will leaves my entire estate to my 2 DC.

As a single person I know I have £325K standard inheritance tax allowance plus a further £175K of main residence allowance. In the next few years it is likely my property value alone will take me over that allowance and my pension will likely be brought into the scope of IHT in 2027.

My ExH is living in rented accommodation and is retired on a modest private pension plus state pension. Both his parents are deceased so he is unlikely to inherit anything at this point. We are on civil although not really friendly terms. He may have some pension to leave the children but I suspect will be well within his £325K inheritance tax band.

It has been suggested to me that in order to reduce the Inheritance Tax bill my DC may be liable for in the future I should enter into a civil partnership with ExH in order to add his unused IHT allowance to mine. He is older than me by 10 years so likely to pre-decease me (although obviously this isn't guaranteed). We would obviously not actually live together - I'm not sure if that matters?

He has left everything in his will to our joint DC and lives a very solitary lifestyle so I think it is unlikely he will remarry. Our 2 DC are his whole world so I am confident he would put their needs first with any financial decisions.

Thoughts on the practical pros and cons of suggesting a civil partnership with Ex H?

Why don’t you just take out an insurance policy to cover any inheritance tax you think your DC would be liable for?

I’m loving the phrase ‘tax planning’ awfully polite for tax dodging, your DC will still get a good whack of ££

Why are people so against paying inheritance tax? Literal insane measures to avoid paying a tax that you won't even know about because you'll be dead. It's always tax the wealthy until its inheritance

When people get large sums of money in this country they pay tax on them. We pay tax to fund public services. Your children are set to inherit a fair sum from you, a portion of that they will have to pay tax. You don't need to commit fraud to avoid them paying a perfectly reasonable tax

Sorry but you’re insane. Just pay your damn taxes.

OP: So you would leave your Will as it is (you would need to re-do it as it marriage / civil partnership invalidates a Will) and leave everything to your Dc? And your Ex would do the same?

The ‘next of kin’ stuff is easily dealt with by setting up LPA, which you should have anyway.

I’m not sure what would happen if he needed a care home. Do you live in your house? It can’t be sold if it is your home. But if it is rented out it might?

And divorce would be a risk. You really don’t know what the future holds and what his future life choices might be.

And if you die first (any of us can have an accident or life limiting illness) he could probably reasonably challenge the will as a dependent as he has no house.

IHT does often affect the descendants of single parents more than married.

Plenty of people never get around to divorcing exes but end up living apart and would be in the situation you are thinking of creating.

But overall, I think not worth the risks or unknowns.

I would be v perturbed if I thought my Mim was doing this to protect my potential inheritance

Right, it seems that everyone thinks this is a daft idea.

To clarify a few points:

It was actually DP that suggested this to me. He is currently getting a lot of (very expensive) tax advice regarding his family finances and this was something that had come up as part of that discussion.

My DC have LPA for financial affairs and my DP has it for health and welfare so I'm not worried about ExH having any say in what happens to me in the future.

I feel it is really unjust that as my ExH and I got divorced my DCs are disadvantaged financially by that. A civil partnership would simply put that situation back where it was pre-divorce so I can't get worked up about them not paying that tax as it wouldn't have been due if we hadn't divorced.

The comments about ExH wanting to remarry in future echo my own concerns, even though I think this is a vanishingly small possibility. I posted as I wanted to see what others thought about this. I agree with everything being said in relation to this.

I hadn't considered the care costs issue at all so thank you to posters who have mentioned that - that seals my decision that this is not the right way to go.

@MmeWorthington Thanks for the considered response. Your are right I think that this is a risky strategy.

I think that even though I live in my home care debt could still sit against it if my ExH needed long term care in his old age? I might look into this a bit more though.

You are correct re the wills, I would pay for us both to re-write them post civil partnership to leave everything to our kids.

I wouldn't worry about him dying first and living in my house as long as it was left to the DC eventually but again there's a risk of course if he remarries.

Many people think it's illegal, immoral and stupid - not "daft".

If your DP's "(very expensive)" tax advisor actually suggested it I would be astounded. Perhaps your DP just didn't understand the advice. If they did in fact even mention this as an option, he should sack them for giving advice which would result in an unlawful tax dodge. You can't trust any of the advice they are giving to be accurate or lawful if they would suggest a sham marriage.

No regulated tax advisor should be suggesting this, just as a solicitor would never suggest that you destroy documents, lie in court, or fake a marriage for immigration reasons.

@senua Yes, that's the other possibility to try to manage things so that I pass enough over to my children early enough to minimise any tax they would pay.

I can’t see how this fraudulent tbh it’s the same as we all do (and that includes benefit claimants) try to minimise the tax we pay on money that had already been taxed (and in most cases that worked hard for).

Anyway as others have said, it’s a bad idea and could get messy. Just start passing money to DC to put in ISAs, that’s what we’re doing. Oh and downsizing - smaller bills and tax free money to pass on.

This wouldn’t work if your ex leaves assets direct to the children. You would not inherit his full allowances, just what wasn’t ‘used’ on the gift to the children. To inherit the full allowance he would have to leave his assets to you as an exempt spouse so that his allowances are not used and then available to pass to you.

@1apenny2apenny Thanks for your voice of reason amongst the 'pay your taxes' brigade. I am not averse to paying taxes, I have paid more than my fair share over the years.

You're right, it is a strategy that could get messy and I don't want the DCs to have to deal with any more mess than they have to. I am trying to balance passing money to them for ISAs with making sure I will have enough for retirement.

I think had I realised this would be the position I would have come to an arrangement with exH that avoided us divorcing in all likelihood.

@22mumsynet Yes, you are right. I think I did know that but had forgotten. Again, I wouldn't have an issue with that as I know ExH would put the DC first and I would happily pass anything he left to me straight to the DC if he pre-deceased me and hope I lived another 7 years.

I think it is academic though as the strategy has the potential to be really messy.

Exactly this.

This is so shocking - tax dodging dressed up as tax 'planning'. You should be ashamed of yourself for even entertaining such an immoral and probably illegal act. I will probably leave a very large estate when I die, and am pleased to know that a good sum will go in inheritance tax. My DC will receive plenty of unearned income from my death; it's only right that the some of that free money should be paid in tax. Dodgy schemes that this are essentially aimed at defrauding the taxpayer.

Let your kids sort it out in due course! They will have to live their lives and make their own ££ for their own lifestyle. By all means help them on the way there if you can though. That's probably more important, on the assumption you'll live at least 70-80+ years. There may well be 5 or 6 or many more changes of government and policy by then so who is to say what the changes will bring in terms of inheritance tax.
(It may well be that by the time you are on your deathbed that due to changes in the care system ALL your inheritance could have gone in paying for care! - my prediction)

Why have you paid "more than your fair share" of taxes? You should apply for a rebate if so.

Already done, but HMRC are very slow.

If you/he leave everything to DCs them in your wills doesn't that do the same thing? Or does he not have half share in the house? Or you want to inherit everything first?

The IHT rules are the same for married couples or civil partners. I assume you don't want to get married.

Wouldn’t it be easier to just sell your place and downsize in a few years and give your DCs the spare cash?

If your children are as cold as you sound then crack on! If they have any love, morals and decency in their souls then think about how they will view you when you die 😥. Your exH sounds like he’s enjoying a quiet, simple life - don’t drag him into husband no2’s unethical ideas.

@catipuss As a PP stated, we would need to leave everything to each other to benefit from the IHT bands being passed on. He doesn't have a share in my house, we were divorced many years ago.

If I inherited anything from him I would pass it straight to the DC and hope to live another 7 years so it was exempt from my estate.

I think the upshot is that I'm not going to do this, I'm going to pass any excess on to the DCs prior to death if it's possible and they will have to pay the IHT on any excess - hopefully a very minimal amount. This strategy will have the same end result without being 'amoral' as PP poster put it 😂

The IHT rules are exactly the same for married couples and those in a civil partnership. It is no more fraudulent than getting married to get the benefits that being married brings.

The people who don't do one or the other are (usually) foolish not only in terms of IHT but also in danger of being dumped and getting nothing from their partner.

Why not gift your kids money whilst alive and look at 7 year (or has this changed) rule.

Never would I do this. Anything can happen. Also, paying IHT is part of life. The bulk of my money will go to IHT. I am not upset by it, at all.

Yes, that's a possibility, but if I am blessed with grandchildren at any point I would like somewhere big enough for all of them to come and stay with me and anywhere smaller than my current house wouldn't allow that. Basically I own a modest house but in an expensive area which I don't really want to leave as I have a lot of friends here.