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?

I would look into it yourself, not on a forum, maybe get legal advice about the legality of it. As I said upthread people often just post what they want to think, not what they know but remember anything to do with the government can change at any time

This is wild. And stupid

It's tax planning, the very wealthy do it, why shouldn't the rest of us!

Its pathetic. Your estate is sufficiently modest that the IHT would be peanuts. Its not worth the risk or the deception.

I am exhausted hearing about people trying to avoid paying tax in ever more devious ways. Play your part.

I agree with all the brigades:
Terribly risky brigade
Pay your taxes brigade
Not huge samples we are talking about here anyway brigade

sorry op ! You were right to ask. I hope you have found some responses helpful! 😊

funnily this has got me thinking:
my current net worth (minus liability) is around anything between 500 and 600. This is likely to become over a million in say another 15 years.

any also likely to sell a business in 5 years that might net say 5 million (modest valuation- it is 8 to 12 mil current valuation).

if I die now, I am happy for all beneficiaries to pay tax. I married late and no kids. One adopted child (I might start looking for her adoption papers ( thanks op) to ensure her portion is tax free- I wasn’t bothered until now. She was adopted abroad (and never lived in IK) but need to ensure the adoption is recognised in U.K.- again thanks op.

at my own assets getting to 1 mil, I might consider giving step kids ( adults and 1 is wealthy) 100k each . Again, thanks op as I was not leaving them anything, choosing nieces so they pay tax. But because of op, I will now ensure tax reduced as now giving them.

when it gets to business sake wealth, my plan was to start a foundation and give the lot away that way, do that plan remains. Step kids get nothing as per original plan. One is wealthy and one doesn’t know how to manage money. :-) 😊

Aldo by the time I am old ( still 40s) I might be in a country which has no IhT ( where adopted daughter lives) and there is an asset there that is already given to her in a will. Again, even if tax is required there, because of U.K. rule, I do not lose sleep.

yes, I pay lots of tax now and that I don’t really enjoy as it prevents me from making more money so I can eventually give away more :-)

There's many other ways to reduce your IHT bill, or rather the one your heirs may have to pay. I'm glad to read that you have disguarded this risky suggestion. As some financial advisors say, don't set yourself on fire to keep your children warm.

Like those in our government seem to have no qualms in doing.

How so?
If you make a will leaving nothing to your spouse and everything to your children then that's the end of it.

That’s Fraud. Tax avoidance on a despicable scale. Why should your estate be exempt from paying taxes? If you really want to avoid IHT then spend it before you die.

Can you explain exactly what is fraudulent about it?

This is a joke yes?

Legally CP requires a single shared primary residence. Unless her ex wants to move in with her and the current DP then it would be a form of ‘sham’ partnership

I’ve caught up on the OPs comments now and see she’s no longer pursuing this idea

God no !

You sure about that?
I'm married and we live in separate houses, he owns his house and I own my house should we be prosecuted for fraud?
What if I married a very wealthy person, I didn't love him but I wanted access to his money, would I be prosecuted for fraud ?

On a serious note, I am now seriously considering finding my adopted daughter’s papers and ensuring she gets 500k tax free.

if that’s all I have when I die, I would then ask her (before I die) to give to others: I don’t like this for many reasons:

1. She is not the smartest and is actually slow- so I don’t want others taking advantage of this ‘in the name of she should share’. She just won’t know when to stop, if estate gets to 1 mil I might consider setting up a trust for her- the issue is the lawyers and trustees are just not cheap and they are not family,

yes, as per original plan which wasn’t even agonised over, they will all get their portions directly from will and let them pay tax.

also, I have always felt (maybe naively) my tax will help vulnerable people in U.K. so not wasted money. Daughter is mid 20s.

Just start gifting now

You don't know what the future holds.

You could enter the civil partnership, get run over the next day and your exH ends up needing care and marries his carer on his deathbed and pass everything to them and leave your kids with nothing.

You could need to self fund your own care and end up with less than the threshold to pass on.

You could do this now, and in the hopefully many years before your death inheritance rules change and now nothing tax exempt.

You could win the lottery and your ex comes after it.

Don't risk it.

People are being overly harsh OP.
They don’t seem to grasp that the OP has already paid the taxes on her earnings - and more.
These are effectively her lifetime of savings - in the form of property, savings (that were taxed) and pensions.

I’m following with interest myself.

I met a man who remarried his ex-wife - just so that his public service pension would not be effectively lost and die with him.

I’m watching and hoping a close relative is not going to do the same…

No, assets held in the sole name of a spouse are NOT able to be taken into account when determining care costs assessments.

In Scotland you have to leave something to your spouse and in England and Wales the spouse can challenge the will if they are left out. Sounds risky to me. Any investigation would soon show that they had not been living together as a couple, she was in another relationship and the civil partnership was a dodge to avoid inheritance tax.
Come to think of it, supposing OP predeceases her ex, the dodge only works if he DOES inherit and then passes it on the children when he dies so that his IHT allowances is also used. Doesn't it?? Perhaps I have got completely muddled.

Argh, just found the adoption is automatically valid in U.K. Will now find the adoption papers from their home affairs version. I was hoping she would end up living with me in U.K. ( she is a double orphan) but is being well looked after there and the pace suits her. My life is too busy anyway, so it has worked out for the best- I just see her during holidays and support financially including paying for her further education. Anyway, at least her portion which is largest will be tax free, so others will pay less tax overall. Again, nothing to lose sleep over. Also just needed her to have options in life:-) So, thanks to Op, in an unintentional way. I just wasn’t bothered about her not paying tax!

“If the adoption was made in a country on the UK’s designated list (pre‑2014) or the Adoption (Recognition of Overseas Adoptions) Order 2013 (post‑2014), and the adoptive parents were habitually resident in England or Wales at the time of the adoption, the adoption is automatically recognised in UK law. GOV.UK”

I’m exhausted with posters telling me I need to play my part and pay the ever increasing amount of tax the government thinks it can take from me on money that’s already been taxed. I am then expected to sit and watch while they spaff it up the wall/give it away to their mates.

DH and I have worked all our lives and yes, paid tax as per the requirements. This bunch now want to take an ever increasing amount from my savings etc whilst shafting my children with ridiculous interest rates on student loans, shafting small businesses etc. I will look after my family first, I can’t control how much the government wastes but I can control what I do with my money whilst ensuring I try to minimise my use of essential services. The OP is simply putting her family first. Good for her. BTW I still don’t see how remarrying is fraudulent, just pondering how HMRC are going to prove whether the marriage was consummated or not !

Unless you make your ex a joint owner of your house it can never be brought into consideration for his potential care costs. Only assets in his name can be considered. Even if it was in joint names, if the other owner is living in it, it cannot be considered in the pot for his care costs at all. No placing charges against the property, nothing.

That said, I agree that your proposed plan would be very unwise for all the reasons outlined by others.

@OnGoldenPond is correct.