It is thought likely that more older people will consider marriage as a result of the unpopular inheritance tax changes proposed in October’s budget. In her speech, the Chancellor, Rachel Reeves, announced that unused pension pots would be included in inheritance tax calculations from April 2027.
According to the Office of Budget Responsibility, an estimated 1.5% of total UK deaths would be liable to pay inheritance tax in 2027/28 – equivalent to 10,500 in 213,000 estates with inheritable pension wealth.
Pensions have not previously been included as part of a person’s estate and were therefore exempt from inheritance tax which is charged at 40% over the threshold which is currently set at £325,000. This increases to £500,000 for those leaving their home to children or grandchildren.
A further 38,500 estates will pay an average of £34,000 in additional inheritance tax when pension assets are included in the value of the estate.
In most cases, transfers between spouses and civil partners are exempt from inheritance tax.
The tax benefits of marriage have gradually been eroded, with the exception of inheritance tax up to now.
As an example, two unmarried cohabiting individuals with a combined £1.5 million in assets (if the right balance of property, cash, investments and pensions) together may pay around £170,000 in inheritance tax on the death of either of them. Marriage would mean they could be exempt.
Same sex couples, in particular, have become more interested in marriage rather than cohabiting.
The capping of tax relief for businesses and agricultural property will also likely encourage marriage. When the rules change, the first £1 million of combined business and agricultural assets will be tax free but inheritance tax will be applied at 20% on the remainder. Those who are married will be automatically exempt from inheritance tax and any unused nil-rate band will be able to be transferred, effectively doubling the amount of tax free assets that can be passed on.