Ricky Gervais is getting married for Inheritance Tax. And he has a point.

After 44 years together, one of Britain’s best-known couples has highlighted an uncomfortable truth about estate planning: when it comes to inheritance tax, being together for a lifetime is not the same as being married.

Ricky Gervais has revealed that he intends to marry his long-term partner, author Jane Fallon, after more than four decades together, and inheritance tax appears to be one of the deciding factors.

Gervais explained that Jane’s recent cancer diagnosis had caused the couple to reconsider their long-standing position on marriage. The couple are reported to have substantial joint wealth, including an £18 million property portfolio, making the potential inheritance-tax consequences rather more significant than the cost of the wedding cake.

And while most families will not be dealing with an £18 million estate, the principle Ricky has highlighted affects millions of unmarried couples.

44 years together, but the tax system does not care

There is a widespread assumption that living together for many years eventually creates some form of “common-law marriage”. It does not.

In England and Wales, an unmarried partner does not acquire the legal status of a spouse simply because a couple have lived together for five years, twenty years or, as in Ricky and Jane’s case, more than forty.

Government guidance is unequivocal: common-law marriage does not exist in England and Wales. The rights available automatically to married couples and civil partners do not simply arise through cohabitation.

That distinction becomes particularly important on death.

Transfers between spouses and civil partners are generally exempt from inheritance tax. HMRC confirms that, subject to particular rules where one partner is not a long-term UK resident, transfers between spouses or civil partners can qualify for the spouse exemption.

Unmarried couples do not receive that exemption, that can create a remarkably stark result.Two people might have shared a home, finances, businesses, children and practically their entire adult lives.

For inheritance-tax purposes, however, their relationship does not receive the same treatment as a marriage or civil partnership.

“But everything is jointly owned…”

This is another area where misunderstanding can become expensive. Joint ownership may determine how an asset passes, but it does not necessarily determine how that asset is taxed.

For example, an asset passing automatically to a surviving joint owner does not magically create the inheritance-tax exemption available between spouses. Likewise, having a Will that leaves everything to an unmarried partner can make absolutely good sense from an inheritance perspective, but the Will itself cannot manufacture the spouse exemption.

A Will determines who receives your estate, it does not change the recipient's tax status.

That distinction matters enormously.

So is Ricky right to get married?

From an inheritance-tax perspective, there is considerable logic to it. Marriage or civil partnership can provide an immediate and extremely valuable protection on the first death.

It can also allow unused inheritance-tax allowances to be transferred between spouses or civil partners. Current rules allow unused proportions of the basic nil-rate band, and where applicable the residence nil-rate band, to be transferred to the surviving spouse or civil partner.

But there is an important second part to the story.

Marriage can defer inheritance tax. It does not necessarily eliminate it.

If one spouse leaves everything to the other, the spouse exemption may mean there is little or no inheritance tax on the first death. But the assets have not disappeared.

They are now concentrated in the survivor’s estate. For substantial estates, the eventual inheritance-tax exposure on the second death can therefore remain considerable. Inheritance tax is normally charged at 40% on the taxable value above the available thresholds.

So for wealthy families, getting married may solve one problem while leaving the larger estate-planning question untouched. That is where proper planning begins.

The iTrust View

We rather like Ricky Gervais at iTrust121, and on this occasion we think he has inadvertently delivered one of the better estate-planning messages of the year. Because the lesson isn't really:

“Get married to save inheritance tax.”

The lesson is:

Understand how the law actually treats your family before the law gets the opportunity to decide the outcome for you.

For unmarried couples, that means considering far more than simply writing a Will. 

The planning should examine ownership of the family home and other assets, what happens on the first death, how financially secure the survivor would actually be, available inheritance-tax allowances, life policies and pension arrangements, liquidity within the estate, lifetime gifting and trust planning where appropriate, and ultimately how the estate should reach children or other intended beneficiaries.

For larger estates, there is another important question:

Are we simply postponing inheritance tax until the second death, or are we actually planning the estate?

Those are two very different things. Good legacy planning should normally consider both.

And there is one rather important trap for Ricky…

There is another reason this story deserves attention. If someone already has a Will and subsequently marries or enters into a civil partnership, that marriage will usually revoke the existing Will, unless the Will was specifically prepared in contemplation of that marriage.

So anyone deciding to marry partly because of inheritance-tax planning should review their Wills at exactly the same time, otherwise, a decision intended to improve the estate plan could inadvertently dismantle part of it. That would be a particularly irritating way to save tax.

What if you simply don't want to get married?

That is entirely a personal decision.

Nobody should have to marry simply because the tax system treats their relationship differently.

But if you choose to remain unmarried, you should plan on the basis of the law as it exists, rather than the law you reasonably think ought to exist.

That means accepting that an unmarried partner does not automatically receive the protections afforded to a spouse or civil partner and then deliberately building the appropriate estate-planning structure around your circumstances.

The greater the wealth, the property ownership and the complexity of the family, the more important that becomes.

A big thumbs-up from iTrust121

So, Ricky, a big thumbs-up from all of us at iTrust121.

We are big fans anyway, but anyone who gets millions of people talking about inheritance-tax planning deserves some additional credit. Perhaps getting married for tax reasons isn't the most romantic proposition ever made.

But after 44 years together, we suspect Ricky and Jane probably don't have too much left to prove on that front. More importantly, their story raises a question every unmarried couple should ask:

If one of us died tomorrow, would the legal and tax outcome actually be the one we expect?

If you don't know the answer, that is precisely where proper legacy planning should begin. We wish Jane well following her diagnosis, and Ricky and Jane many more happy years together.

James Berkeley
Senior Counsel | iTrust121 Ltd

iTrust121 provides estate and legacy planning services. This article is intended for general information and discussion and should not be treated as individual legal, tax or financial advice.