Trusts and Inheritance Tax

Providing for a spouse or civil partner

Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP
  • 19 Oct 2021 23:14

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Providing for a spouse or civil partner
  • Outright gifts
  • Life interest trusts
  • Flexible life interest trusts
  • Other provision for a surviving spouse by Will

Providing for a spouse or civil partner

Outright gifts

In their Wills, many married couples and civil partners (collectively referred to here as ‘spouses’) wish to leave the bulk of their estates to each other. The main reason for this is to ensure that after the first death, the survivor can continue to enjoy the same sort of lifestyle they enjoyed together. The survivor usually wants to remain in the couple’s home, at least initially.

The other main reason for one spouse to leave his assets to the other is that there is generally no inheritance tax to pay on his death because of the spouse exemption. Provided that the surviving spouse is UK domiciled or both spouses share the same domicile (whether UK or not), there is no inheritance tax to pay on gifts between spouses, whether during lifetime or on death. Note, however, that the spouse exemption is currently capped at the same level as the prevailing nil rate band (currently £325,000) on gifts by a UK domiciled spouse to a non-domiciled spouse, unless the non-domiciled spouse elects to be treated as UK domiciled for inheritance tax purposes. See the Transfers to a non UK domiciled spouse or civil partner guidance note.

The majority of clients provide for the surviving spouse by leaving the residue of their estates to each other outright. The property of whichever one dies first will pass to the other and, on the second death, the survivor’s Will governs the onward destination of the property. On the second death, there may be inheritance tax to pay on the combined assets remaining at the date of death but this may be reduced by the transfer of the unused nil rate band from the first death. See the Nil rate band guidance note.

Life interest trusts

Not all couples, howev

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