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?

Excellent explanation. Your clients are lucky to have you :-)

@Goatberryfish thanks for the compliment, I do like to be helpful

I agree that adult children paying a bit of IHT on inheritance from parents is really not the end of the world as they really should be financially independent. Certainly not worth getting involved in convoluted schemes to avoid it that bring with them a whole load of unintended consequences.

@TemporaryDogMum if still here, read @OnGoldenPond ’s posts.

set up won’t be illegal bar for the ‘risky risky part’. Partner marrying oh sorry not partner but civil partner remarrying, failure to pass on the assets or all the assets to the children after your death or because the whole estate would be gobbled up by care Home fees, et cetera, et cetera, et cetera

And for me, the value of your assets not really worth for want of a better word tinkling with anything. Only you can give genuine gifts to your adult children because once its gone to them if they marry it can go during their divorce or if you later end up needing care, they may be asked to return some if not all of that.

Good luck.

Oh, thank you! I really feel touched that I am not the only person who thinks adult kids paying a bit of tax is not the end of the world. That includes my nieces and nephews hence my then newly (and lovely) husband got shut down when he highlighted stuff going to him = no IHT. lol

i also have no issues with people doing estate planning if really worth the expense or stress. Most of it is not! Like I have shown in my case!

i do find income tax high and have grown to accept it. When it gets too much, I just work 6 months and go to extended family for 6 months. So I have found a legal way to avoid paying over the odds in tax as I pay enough at 40% and refuse to pay nearly 65% in real terms.

also, life is give and take. I have worked out I have managed to acquire more assets (investments so gov will even get more in IHT as I am an investor and not a huge spender) as for nearly 15 years my salary was paid as dividends. So we are all one big community so we must each play our role at different times!

Op, apologies in advance as I really don’t like commenting on people’s feelings.

However, you need to get some perspective. I for example don’t have biological kids. You don’t know the reasons. I pay tax to support state education when I have no kid in state education (my adopted child was privately educated abroad). I may end up paying for care as I have funds but some people do not pay for care as they get fully state funded care.

if we all went about comparing ourselves to others ( those still married will benefit ( yup, you may have divorced as ex was violent/ for the same reason I don’t have kids because maybe I am barren) ) .., you see where this is going.

again, not minimising your feelings, but really we all need to have perspective. It would help a lot’

Everyday we get a thread about benefit fraud and immigrants costing us millions but there’s people considering marrying their ex husband to avoid paying tax? Mental

You are averse to paying tax though? You are considering marrying your ex husband to avoid paying inheritance tax?

And you haven't or won't pay your fair share of taxes if you do this, as inheritance tax on money over 500k is your fair share.

I'd reconsider your decision if he's diagnosed with a terminal illness though

This is the most ridiculous idea I’ve ever seen… absolutely do NOT do this! For one it’s tax fraud. And secondly, you do realise that if YOU die first… then everything you own goes to him. Your EX! What about your current partner? What about your children? Just stop and think about exactly what you’re actually proposing!

No it doesn't, not if you've made a will in anticipation of the partnership.

Yup! I also have no issues with this. Plus, plenty of people do it mostly for financial reasons, so why not the op?

yep, so you could end up dying first and then your ex now civil partner ends up in a care home and the entire estate is used to pay for a care home for him and your dc end up with nothing

why not just leave your dc a nice package, anything over £500k they will have to pay 40% tax on. So if your house increased in value by £200k then youd have £800k and they'd have to pay 40% on £300k so £120k and they'd be left with £680k between them - is this not enough for them? £340 each instead of £400k

Or you play Russian roulette with ther inheritance and they end up with diddlysquat

seems madness to me..?

They aren't in a relationship though! At least, they aren't a couple

OP, ignore tax paying brigade. I bet they aren't net contributors.

This all depends on your age and health. There is a good chance that the next government will be some combination of Reform and Tory. Both wanted to abolish IHT. But for now try to give as much as you can via gifting.

Can you gift them some money in the near future? I guess your assets are tied up...

Thanks for all the comments. As I said upthread, I have ruled this out as an option as it could clearly be really messy.

In answer to some comments, I don't have a problem with the DC paying IHT, just as I don't have paying my own taxes. What I do have a problem with is that the current regs disadvantage them because their dad and I are no longer married.

The move to bring pensions into scope of IHT will bring so many more of us into this tax group that I think more people than realise it currently are going to have the same issue as me in 20/30 years time.

I have written to my MP this morning to ask for a review of the IHT exemption/allowance provision in relation to divorced parents who have both not remarried at time of death. Whilst I don't hold out much hope that this will bring any positive results as clearly the freezing of bands and inclusion of pensions are clear tax raising measures, I hope it will at least shed a little light on the current inequality.

And yes, once retired I will look at gifting them money to keep their tax burden as low as possible.

He could divorce you and take half of everything.

I'd worry more about those who pay non or even worse just take and claim not those who are being double taxed.

When they could just give some money away earlier.

IHT is a tax on hoarding*. So don't hoard. Give the money away earlier! Don't make your kids wait until you die.

*obviously the situation is different is you die suddenly in your 40s or something.

Worst idea ever.

Your suggested course of action would be a very bad idea on the counts that everyone has already outlined. They say that inheritance tax is a tax on people who don't trust their children: as you age you should give money to your children while you still expect to live for seven years if you want to avoid it! There are also insurances that you can take out when you're younger to cover inheritance tax costs which are legal and make a lot more sense. Hope that's helpful!

I’m in a slightly similar position and currently looking at how to legally remove/reduce potential IHT liability from my three children.
So far I’ve investigated discretionary trusts and gifting.
The trust route is interesting as removes assets into a separate legal identity but with access if needed. It seems to be a nightmare to set up and does scare me a bit!
The gifting option is more straightforward but I’d have to survive for 7 years to remove IHT altogether. I obviously intend on doing this!
Very vague ideas so far as can’t make definitive decisions until probate is granted, but maybe alternatives to civil partnership?

Take out equity release and gift the money to your kids and live for another 7 years. It might be costlier than 40% tax in the end though.

I often think this too!