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 know nobody wants to pay the taxman but honestly that is a lot of money and more than enough to help them in the future. Your children wouldn't gain all that much from paying IH over your threshold, not enough to go through all this anyway.

You also may not have that money to give anyway, if need care home fees as you get older.

Assets left to children, natural or adopted, are not exempted from IHT. They are treated in exactly the same way as bequests to anyone else, ie the whole taxable estate after taking into account the deceased’s nil rate allowance would be taxed. It is only bequests to spouses that are exempt.

If the money is available just now, gift them it, if you live a long life your kids will
already have homes etc. I prefer to help whilst they’re young.

Can’t you just gift your house or some of your money to dc now? Then it’s theirs and doesn’t count towards IHT provided you live a good few more years after the gift

I won’t touch your first part, as I can relate to it although I have just grown past caring and now only work half of the year and travel for the other half spending more time with my adopted daughter (very good) and caring for my elderly mother. This also helps me not lose 65% of income to income tax. But it means leaving clients finding alternatives etc which disrupts them.

however, on the last part- that’s the risky part people are mentioning. Anything can happen and this may end up being litigated over in courts. Yes, and quite rightly, illegal things have a funny way of exposing themselves.

This. The number of people I know who
openly talk about how they can dodge paying tax is staggering. They have no hesitation about complaining about public services though and don't see the relationship between the two. This is fraud OP. Plain and simple fraud. 🤦🏻‍♀️

Yes there ways in which this plan could backfire on the op, however, I can't see how this civil partnership would be illegal.
Is it illegal to marry someone if you don't love them or if you don't have a physical relationship with them? It certainly isn't illegal to not cohabit with your spouse or civil partner.

really! Even the 175k portion ( forgot its legal name as relaxing!)

thank GOD, I actually wanted them to pay tax.

i see, yes, I refused to bequeath my estate to my husband to avoid tax too. That’s because we married late :-) I knew about this.

so when does the benefit op is sayinb kicks in? I know I can use AI, but I saw you know what you are talking about 😊 thanks in advance

But people get married because of the tax benefits, said benefits are used to incentivize marriage and now you're saying that responding to these incentives is a tax dodge.
I put money into an ISA, are you telling me that's a tax dodge?

Several posters have said that entering into a civil partnership just for the purposes outlined by the OP would be fraudulent. This is not so. It is not necessary for the marriage to be based on a romantic relationship for it to be effective in qualifying for the usual financial and taxation benefits. Marriage has always been, at its roots, a financial contract. Though it also confers all the other rights over the assets of the other spouse that come into play on divorce. So no, it is not necessary to share a home, have sex together etc for the marriage to be valid and lawful.

Non consummation can be used as grounds for requesting an annulment of the marriage but is otherwise irrelevant in law. There are also specific immigration regulations for deciding if a marriage can be regarded as valid for the purposes of granting a visa to a spouse. Apart from these specific circumstances, the marriage is valid and lawful as long as a valid marriage ceremony was conducted and recorded.

Sorry for being simplistic and I’m just using common sense. Isn’t the fact that you are marrying someone you are not at the time of the civil partnership in a relationship with? Or does it mean an any person over the age of 18 or is it 21 man or woman can grab another man or woman of the recognised age and enter into the CP? You might be right because I am aware of people doing this on their deathbed with their ex, but I thought that was probably recognised as l maybe a person being able to argue in the last week before the ceremony the ex couple reconciled? Then death followed. Although I know when that happens, it’s when one of them is doing it so that it’s done before they die . As I said, I don’t know.

I’m sure someone who understands this will come along. As I only know about the legality of marriage and how it can be challenged or annulled.

What about putting the assets in a trust instead? It won’t go to probate, avoids inheritance tax.

Expensive to manage a trust unless we are talking about significant sums to make the expense worthwhile. The sum op is dealing with is also a factor. I know to her it’s her money and a lot, but in tax planning etc it may not be worth the extra costs!

I am not challenging you.

say, ( which is remote which is probably this is considered relevant) say one party successfully had the marriage annulled, surely all the financial benefits would be instantly lost?

I recognise the remoteness of annulment in most marriages to make this irrelevant. And the marriage certificate being conclusive evidence of marriage.

re consummation and financial benefits etc- you should be right. As those who marry on death bed cannot consummate but these marriages happen all the time!!!

Yes really.

The benefit of being married is that spouses can leave assets to each other and these transfers are exempted from IHT. So those assets do not form part of the taxable estate and so do not use up any of the nil band IHT allowance of the first spouse to die. Therefore if all assets on first death are left to the surviving spouse, none of the nil band allowance of the first spouse is used against their estate. This unused allowance can be then transferred to the surviving spouse to set against their estate on their eventual death. So the second spouse to die gets a double tax free allowance. If a property is involved, they get £1m allowance instead of the standard £500k allowance.

These exemptions and allowance transfers cannot be claimed for transfers between unmarried partners or to children.

Completely agree! (and I’m currently paying IHT on my dad’s estate, and he certainly wasn’t a rich man). I bet the same people are grumbling that we have to queue in corridors for hospital beds.

Thank you for your reply 😊, in response I would like to refer you to the post directly above your post, i.e this one:
OnGoldenPond · Today 14:37

Thanks.

so the 325 IHT threshold is tax free no matter who the beneficiaries are. I think I must have known this in my head at the time, as considered the difference between 400k estate and tax threshold to be minimal. Thanks.

i know 175 relates to a home. Please explain this?

yes, it’s a while since I last gave advice on care home financial assessments. And to be fair, was not and still am not concerned about IHT. Yes, I think IT is way too high and that should be reduced slightly!

Oh! Nicest reply I have ever received on MN. Yes, also thank you for your reply! I have since (albeit, belatedly) seen that mentioned post. 😊

@OnGoldenPond

found the answer using AI. Just needed to refresh my memory! Again thanks!

IHT generally applies:

• IHT is charged at 40% on the value of the estate above the nil-rate band (£325,000 for the 2025/26 tax year).
• There’s an additional Residence Nil-Rate Band (RNRB) of up to £175,000 when a home is left to “direct descendants”. That can take the total tax-free threshold (nil-rate band + RNRB) to up to £500,000 per person.
• IHT is paid by the estate before beneficiaries receive assets — beneficiaries generally don’t personally pay IHT.

Will still look for my adopted daughter’s paper and sort out her immigration stutus so she can visit freely when I am old and frail. I hope to move abroad later but I love England so won’t discount spending my last days here.

no, no plan to leave any house to anyone as that’s the bulk of my assets; and I need them sold when I am nearly there (12 months or thereabouts) as I am horrified that tax is payable within 6 months of death which is crazy when you have many properties.

husband leaves his estate to me, so If he dies first, no benefit leaving 500k house to his kids as 1) they would need to sell anyway. , I still need it to cover IHT for others.

Anyway, thanks. This has been useful. If assets go over 1 mil, that will justify me setting up a trust although I really don’t agree with the fees involved in managing one. If I had 2/3 mil i wanted to give to family, then yes. But I have no such plans as going to a foundation when wealth gets that much!

Yes that’s right. The nil rate band is applied to the value of the estate after all exempted bequests have been deducted.

Annulment has the same legal effect of a divorce and brings the marriage to an end, and with it all associated benefits and obligations.

Perfectly and clearly explained. You are very good and have good knowledge.

yes, when I married the value was around 400/450k so thought 325 was enough for beneficiaries without paying IHt. I still feel the same. Even if it gets reduced to say 250 or 100k I am ok. We must all pay taxes and experience of pp not used to lots of money getting money is not good. Sudden money ruins people’s lives. And worked butt off for it I believe all others must work too, even if they were biological. I value work ethic above all else. Luckily my daughter works hard :although she won’t get a high salary career, so she deserves it.

if she was lazy, entitled etc etc, I would reconsider :-) I have guided her well and makes me smile when she asks for £10 for her exact need although she knows I could easily give her £50 or 20 or even £100 without Q. I always then add any additional amount out of my own free will! :-)

This
Shameful behaviour, OP.

You may well be right about the amounts involved, however, the thresholds have been frozen for years and I may survive for another 30 years so my worry is more that what seems like a small amount of IHT now may be very significant in 30 years time with fiscal creep.

I appreciate this is all theoretical and I may need to spend a small fortune on care in the future but I guess it just annoys me that there is so big a disparity between married couples and singletons.