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Paul Lewis: Time to shake up IHT rules for non-married couples

Non-married couples deserve to be treated more fairly when it comes to their tax rights

An emergency vicar was recently called to comedian Ken Dodd’s bedside for the marriage of the 90-year-old to Anne Jones, his partner of 40 years. It is not often the church is involved in tax planning – at least not on behalf of its adherents – but a deathbed marriage can save more money than any other legal inheritance tax avoidance scheme.

It was not just the emergency vicar who was needed. A registrar from Liverpool Register Office was there to conduct the ceremony and make the marriage lawful for Mammon as well as God. After the ceremony there would have been an emergency lawyer to make a new will and two emergency witnesses to sign it to ensure the new Lady Dodd was lawfully left Sir Ken’s well-gotten gains. In England, Wales, and Northern Ireland (but not in Scotland), a will is normally invalidated by a marriage.

If Sir Ken and Anne had not tied the knot in his last hours, all but the first £325,000 of his considerable fortune would have been taxed at 40 per cent. When he was acquitted of tax evasion in 1989 the Revenue revealed he had more than that in cash stashed in wardrobes and cupboards.

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So while Anne would not have been left bereft, a very large chunk of Sir Ken’s chuckle money would have gone to help reduce still further Chancellor Phillip Hammond’s deficit. The Times estimated the emergency ceremony kept tax of £3m from him. “How tickled I am”, you can hear Sir Ken chuckling. Or, as he once joked after his acquittal on tax evasion charges: “They sent me a self-assessment form the other day. Me! I invented self-assessment!”

Deathbed weddings are not that rare. And of course they have many reasons beyond tax planning. Like finally getting round to it, or a final declaration of eternal love while there is still time. A call to the local register office will set the wheels in rapid motion. No wait of 28 days between banns called and knot tied.

The superintendent registrar will dust off the 1970 Act of Parliament which allows the ceremony to take place on unregistered premises. The registrar will top up her emergency pen with indelible ink. And if the church is wanted – the marriage is actually done by the registrar – the local prelate will don his or her emergency dog collar. It can all happen within hours if necessary.

All this activity would not be needed if the law recognised that 40-year-long love affairs like Sir Ken and Lady Anne’s were in essence a marriage and granted them the same rights. After all, civil partnerships were given the status of marriage for tax purposes in 2005. Same sex marriages got those rights when they were allowed from 2014.

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And when Parliament finally emerges from its Brexit paralysis, it may get round to extending civil partnerships and the rights they bring – to couples of different genders as well. But the next step – full legal rights for unmarried, non-civil-partnered cohabiting couples – is probably decades away.

Since 2006 the law in Scotland gives cohabitees some rights but not to tax exemptions and the Law Commission in England and Wales did not suggest that in its report at the time. Supreme Court President Baroness Hale has said several times that cohabiting couples should have more rights when their relationship ends but she has not suggested tax rights on death.

At the moment, a bereaved partner without legal status may not just face a large IHT bill, they can lose their home. If it is worth more than the IHT threshold of £325,000 then the estate must pay 40 per cent of the excess to the Treasury. If there are few other assets, the bereaved person may have to sell the home they have shared to pay the tax bill.

HM Revenue & Customs allow the tax to be paid over 10 years but charge 3 per cent a year interest on the outstanding debt. An unmarried non-civil-partnered bereaved lover does not benefit from the extra residence nil-rate band which rises to £125,000 from April. That only applies if the estate is left to a direct descendant.

But a spouse who is left the entire estate must be careful, too – a letter from the deceased saying “please give half of it to the Diddy Men” must not be acted on within two years or HMRC will count that money in the estate and tax it retrospectively. After the gifts are made, the widow must live at least another seven years to be free of IHT when he or she dies.

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Meanwhile, other exemptions can be used. A total of £3,000 a year can be given away without coming into the IHT arithmetic at all. A wedding triggers another tax-free gift opportunity of £5,000 for a son or daughter, £2,500 for a grandchild and £1,000 for anyone. Any number of individuals can be given £250 a year as long as they did not get a share of those larger amounts. If the widow has surplus income from the estate, she can give it away without it coming into a future IHT bill.

Lord Willetts said this month that IHT was “poorly designed, widely abused” and “a classic bad tax with a very high rate and very high exemptions. We could lower the rate but with a broader tax base, which would be fairer for all.”

Perhaps an idea for the Office of Tax Simplification, which is reviewing IHT.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Marriage or Civil Partnerships require the agreement of the two people concerned. If one party is happy just to live together the other party cannot force the other one to get married and neither should the State treat them as being married. Marriage is at base a contract that can be entered into freely, if you choose not to marry you don’t have the benefits but neither do you get the rights. There’s no need for a big ceremony, just pop down to the register office, get two witnesses and make a simple declaration

    • The exemptions are available to anyone in a formal relationship to take advantage of should they wish. If one or both parties have decided that they do not wish to avail themselves of the opportunity for marriage whether civil or otherwise then they will pay more tax (and potentially cause more heart ache) as a direct consequence of their own inaction. It isn’t for the State to try to second guess the options and hand assets on in an arbitrary manner.

      There is no need to change any laws as the laws on marriage have been around for millennia and have pretty much always favoured married couples (and now rightly civil partnerships/same sex marriage).

      Anyone trying to advocate some sort of civil partnership “Lite” for people who as the previous person mentions cannot be bothered or do not wish to make a few formal arrangements could lead to a world of unintended consequences.

      However any argument which indicates the way taxes are constructed is perverse and in the words of someone asking how to get to Cork “Well, I wouldn’t start from here” would find me in agreement.

  2. Consider this scenario.Wealthy widower who has son and daughter in law. He has discovered he has but a short time to live with a hefty IHT bill looming.Son divorces wife and ex wife marries ex father in law who shortly dies leaving his estate to his new wife. Marriage was consummated as viagra was available to the new but old groom. Could this be considered as doing a Ken Dodd?

  3. All life planning requires taking responsibilities seriously. The strength of any society is based on The strength of families and institutions in general. Marriage is the best way of achieving this and this is recognised by the tax system. Never mind that things can go wrong and cohabitees can take years to make up their minds over a final commitment. There are anomalies but good planning can get around most of these. People make choices and take the consequences tax or otherwise. We don’t want another nanny state type of intestacy law thank you.

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