Inheritance Tax When Leaving Everything to a Spouse

Under UK inheritance tax rules, transfers between married couples or civil partners are exempt from inheritance tax, provided both spouses are domiciled in the UK (special limited rules apply where one spouse is not UK-domiciled). This exemption applies to any value of assets, unlike the nil rate band, which is capped, and it applies whether the transfer happens on death under a will, under the intestacy rules, or as a lifetime gift between spouses.

This is why a couple who leave everything to each other typically see no inheritance tax due on the first death, even where the estate is worth well over the nil rate band. The tax position is, in effect, deferred rather than removed altogether.

Because assets left to a spouse form part of the survivor's own estate, the combined value of both estates is effectively assessed when the second spouse dies, at which point it will typically pass to children or other beneficiaries who do not benefit from the spouse exemption. If the combined estate exceeds the survivor's available nil rate band and residence nil rate band (including any transferred from the first spouse), inheritance tax may be due at that point.

This is an important planning point: leaving everything to a spouse avoids tax on the first death but does not necessarily minimise the total tax paid across both deaths. For larger estates, some couples choose to use part of the nil rate band on the first death, for example through a trust, rather than leaving everything outright to the survivor, though this requires careful drafting and professional advice.

When the first spouse's estate uses little or none of their nil rate band, typically because it all passed to the survivor under the exemption, the unused percentage can usually be transferred and added to the survivor's own nil rate band. The same applies to the residence nil rate band where the conditions are met.

This transfer must be actively claimed by the executors when the second spouse later dies, and it depends on evidence about the first spouse's estate, which is why it helps to keep clear records, including the first spouse's will and details of their estate, even many years in advance of the second death.

The spouse exemption applies only to legally married couples and registered civil partners; it does not extend to unmarried partners, however long they have lived together. Gifts between unmarried partners are subject to inheritance tax in the ordinary way, above the available nil rate band, which can come as an unwelcome surprise to long-term cohabiting couples.

Couples who are not married or in a civil partnership and who want to protect each other financially should take this into account when planning their wills and more widely, since the tax treatment is markedly different from that of married couples.

Because the spouse exemption interacts closely with what happens on the second death, it is often sensible for married couples to plan their wills together, considering not just the first death but the eventual position for children or other beneficiaries. My Posh Will offers mirror wills for couples, allowing consistent wishes to be recorded for £89 as a one-off payment with lifetime access, alongside single wills at £69.

Where an estate is large enough that the combined position on the second death is likely to attract inheritance tax, or where more sophisticated planning such as trusts is being considered, use our suitability check, as this is an area where a solicitor or tax adviser adds real value.