Inheritance Tax and Divorce UK | IHT Rules, Spouse Exemptions & Estate Planning

What is Inheritance Tax (IHT)?

Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. In the UK, IHT is typically charged at 40% on estates above the £325,000 threshold. However, various exemptions and reliefs can reduce or eliminate this liability, especially for married couples and civil partners.

Spouse Exemption and Domicile Rules

Transfers between spouses or civil partners are generally exempt from IHT, provided both parties are UK-domiciled. If one spouse is non-domiciled, the exemption is limited to £325,000 unless the non-domiciled spouse elects to be treated as UK-domiciled.

These rules are crucial during divorce, as the IHT exemption lasts as long as the marriage lasts, so up until the divorce has finalised. 

The tax implications of divorce can be complex and costly. You should carefully plan the division of your assets and seek specialist advice to minimise the tax burden of your separation. If you’re considering or going through a divorce, click below for a free initial consultation with one of our expert divorce solicitors. 

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Transfers ordered by the court and estate planning

Property adjustment orders in financial remedy proceedings for the transfer of real and personal property can be made effective only from the final order of divorce. However, HMRC accepts that transfers of money, property or other assets after the final order but pursuant to court orders made in divorce are exempt from IHT, if there is no intention to confer any gratuitous benefit on the transferee. 

This means that a certain amount of tax efficient estate planning is possible in the context of a divorce. 

Vardags’ team of top divorce lawyers delivers a bespoke legal service to HNW and UHNW individuals, their families, and businesses.