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?

Bit out of date with my tax law but I seem to remember there was a potential income tax charge also in these circumstances (POA?). Anyone more up to date?

If you pay full market rent to the person you've given the house to, then it may fall outside your estate - but then they need to pay income tax on that rent. Is that what you're thinking of?

No I think it’s called the pre owned assets charge and it’s an income tax charge. As I said I am very out of date but a quick google says it’s definitely a possibility but complex and there’s exceptions etc. Wouldn’t want to give advice but warn that it appears trying to give away a main residence but continue to live there is fraught with dangers and complications. Another article suggested that losing the cgt main exemption relief may be an issue if you need to change houses downsize move etc.
Still think IHT is so unfair. The only people who pay are people with relatively low wealth generally built up by their hard graft, sacrifices and prudence over many years while paying loads of tax, as the super rich can avoid and do so if you look at the official stats on this. It a spiteful tax based on envy.
Sensible course is to use the various legal avenues to divest yourself of wealth particularly the regular gifts from income route. For the critics out there it’s absolutely no different from investing in an ISA, making tax efficient pension contributions or claiming tax reliefs and or benefits you are legally entitled to.

Ah, I didn't know about that one! I think the take-aways are that

1. Anything more complicated than just giving lifetime gifts needs to be looked into very carefully, probably with financial advice (and even gifts have tax rules to check)
2. Giving your house to a child is particularly complicated!