Unmarried couples, divorcees and single farmers could face inheritance tax bills potentially hundreds of thousands of pounds greater than their married counterparts, following changes to inheritance tax implemented this month, says NFU Mutual.
While the two changes announced at the end of the last year, which include raising the 100% APR/BPR allowance from £1 million to £2.5 million per person and allowing the transfer of any unused allowance to a surviving spouse or civil partner has helped some, not all farming families will benefit to the same extent, the financial advice firm said.
Married couples and civil partners have significant advantages when it comes to inheritance tax planning. Anything left to the survivor on first death is normally exempt from inheritance tax and can also benefit from any unused parts of their late spouse’s £2.5 million APR/BPR allowance and £325,000 tax free allowance.
In contrast, unmarried couples do not benefit from the spousal exemption, meaning that leaving assets to a surviving partner could trigger an inheritance tax bill.
While the deceased £2.5 million APR/BPR allowance and £325,000 tax free allowance could reduce the amount payable, only the survivor’s allowances would be available on the second death when passing assets to the younger generation.
Similarly, those who are widowed can benefit from their late spouse’s unused £2.5 million allowance regardless of whether they owned agricultural or business assets, however, the same is not true of divorcees who have not re-married and only benefit from their own allowances.
Sean McCann, chartered financial planner at NFU Mutual, said: “While married couples can potentially leave up to £6.3 million of qualifying agricultural and business assets free of inheritance tax, the same is not true for single farmers or divorcees who haven’t subsequently remarried who are limited to a maximum of £3.15 million.
“Couples who are not married face additional complexities, as they don’t benefit from the tax-free exemption available to spouses, leaving assets to a common law partner could trigger an inheritance tax liability, followed by a second charge on their subsequent death.
“Unmarried couples who want to maximise the amount passed on to younger generations could consider using the £2.5 million 100% APR/BPR allowance and £325,000 tax free allowance to leave assets to the younger generation on first death, leaving the survivor free to do the same.
‘’For those unmarried couples who don’t wish to get married, it’s important to take advice on the advantages and disadvantages of this approach before taking any action.”
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