What’s the Inheritance Tax Threshold for Married Couples?

If you’re getting on in your years, you might be thinking about the legacy you’ll leave behind. It’s especially important if you have children who would potentially face a large inheritance tax (IHT) bill after you pass away.

Estate planning at this stage can make an enormous difference to what your children actually inherit.

Spouses and Inheritance Tax Allowances

Married couples benefit from a combined inheritance tax (IHT) nil-rate band of £650,000, provided the first spouse to die leaves their entire estate to the survivor. Transfers between spouses are completely exempt from inheritance tax, and crucially, any unused nil-rate band passes to the surviving spouse, effectively doubling their allowance to £650,000.

The Main Residence Nil-Rate Band

On top of this, there’s an additional allowance that applies specifically to your family home. Where a main residence is left to direct descendants (i.e. your children) each spouse qualifies for an extra £175,000, giving couples a combined residence nil-rate band of £350,000.

Add the two together, and a married couple can currently pass on up to £1,000,000 free of inheritance tax, provided the estate includes a family home left to children or grandchildren.

Where That Leaves You

With a property worth £500,000 plus savings and investments, you may well fall within – or close to – that £1 million threshold. But it’s worth calculating your position carefully, because estates above the threshold face a 40% tax charge on everything over it. On a £1.2 million estate, for example, that’s an £80,000 bill your children would need to find.

Protect Your Family With Whole of Life Insurance

Even where an IHT liability exists, there’s a well-established solution that doesn’t require you to give away assets or restructure your estate: a Whole of Life Insurance policy written in trust.

A Whole of Life policy pays out a guaranteed lump sum when you die, regardless of when that is. Written in trust, the payout sits outside your estate, so it goes directly to your beneficiaries free of inheritance tax. Your children can use it to settle any IHT bill without having to sell the family home or wait on probate.

It’s a widely used method for covering an IHT liability, and for good reason: the cover is permanent, the sum assured is predictable, and the trust structure keeps it clean and straightforward.

What Does a Whole of Life Policy Cost?

Premiums are based on your age, health, and the level of cover you need. Couples often take out a “joint life, second death” policy, which pays out when the surviving spouse dies; the point at which the IHT bill actually falls due. This typically makes cover more affordable than two separate policies.

The right time to arrange cover is now, while premiums are at their lowest and before any health changes affect eligibility.

Need Help?

If you’re looking for Whole of Life cover as part of estate and inheritance tax planning, the knowledge of our advisers could be invaluable in helping you and your beneficiaries mitigate any potential liability.

With so much to consider, and so much information to sift through, we’re here to help. We live and breathe insurance, and are ready to find you the right cover. Call 02084327334, email help@drewberry.co.uk, or compare quotes to get started.