Which Inheritance Tax Applies to Married Couples? A Complete Guide to Tax-Free Allowances, Exemptions, and Planning Strategies

Married couples and civil partners have significant advantages when it comes to inheritance tax (IHT).

In fact, with the right planning, many couples can leave up to £1 million to their family entirely free from tax.

But confusion is common, especially when it comes to which inheritance tax rules apply and how to make the most of the available reliefs.

So, let’s answer the key question:

“Which inheritance tax applies to married couples?”

At Belgravia Capital Wealth Management, we help couples structure their estates to minimise, and in many cases eliminate, inheritance tax.

In this article, we break down the IHT exemptions, thresholds, and planning opportunities available to married couples in the UK as of 2025.

1. Spouse and Civil Partner Exemption – 100% Inheritance Tax Relief

This is one of the most generous IHT reliefs available.

When one spouse dies and leaves their estate to the surviving spouse or civil partner:

• No inheritance tax is due

• This exemption applies regardless of the value of the estate

• It is automatic if both partners are UK domiciled

This means a married couple can transfer all assets between each other during their lifetime or on death without triggering IHT.

2. Transfer of Unused Tax-Free Allowances

Beyond the spouse exemption, married couples can also pass on unused IHT allowances to their surviving partner.

This includes:

• The Nil-Rate Band (NRB) £325,000 per person

• The Residence Nil-Rate Band (RNRB) £175,000 per person (if passing the home to direct descendants)

If the first spouse doesn’t use any of these allowances (for example, by leaving everything to their spouse tax-free), the unused portion is transferred to the survivor’s estate.

Combined thresholds:

• NRB: £325,000 + £325,000 = £650,000

• RNRB: £175,000 + £175,000 = £350,000

• Total tax-free allowance = £1 million

This allows couples to plan around a powerful tax-free limit, but only if the second estate is structured properly.

3. What Happens When the Second Spouse Dies?

When the second partner dies, the combined estate will be subject to IHT if the value exceeds £1 million (assuming all allowances are used).

This is why planning during the first spouse’s lifetime, and between both partners, is critical.

Without proper planning, assets may be concentrated in one estate, triggering a higher tax bill.

4. Real-World Example: Married Couple with Combined Estate

John and Sarah are married and own:

• Family home: £750,000

• Investments and cash: £400,000

• Business shares: £500,000

Total estate: £1.65 million

If John dies first and leaves everything to Sarah:

• No tax is due

• Sarah inherits John’s unused NRB and RNRB

When Sarah dies:

• She has a £1 million tax-free allowance

• The estate above that (£650,000) is taxed at 40% = £260,000

With planning (e.g. making gifts, passing business shares earlier, or setting up a trust), the couple could have reduced or eliminated this tax bill.

5. Joint Planning Opportunities for Married Couples

Married couples are in the best position to reduce inheritance tax, but only if they plan together.

Here’s what you can do:

Equalise Estates

Ensure both partners own assets individually (not just jointly). This allows full use of each person’s allowances.

Update Your Wills

Wills should:

• Leave assets to the spouse where appropriate

• Include provisions to utilise both nil-rate bands

• Consider a nil-rate band discretionary trust for flexibility

Gifting Between Spouses

You can give unlimited amounts to your spouse tax-free. This is useful for:

• Rebalancing estates

• Moving investment income

• Making gifts that use the lower earner’s allowances

Plan for the RNRB

If you plan to leave your home to your children or grandchildren, ensure:

• You still own it at death

• It’s included in your estate

• Your estate is below £2 million (after which the RNRB is tapered)

6. Key Inheritance Tax Reliefs Married Couples Can Use

Married couples in the UK can benefit from a number of inheritance tax reliefs and exemptions that significantly reduce the value of their taxable estate, if used strategically.

The most important is the spousal exemption, which allows one spouse or civil partner to transfer unlimited assets to the other on death without incurring any inheritance tax.

This applies only if both partners are UK domiciled.

It ensures that the surviving spouse can inherit the entire estate tax-free, and it also allows any unused tax-free allowances to be passed on.

Each individual has a nil-rate band (NRB) of £325,000, which means the first £325,000 of their estate is free from inheritance tax.

Additionally, if they pass on their main residence to direct descendants (children or grandchildren), they may also benefit from the residence nil-rate band (RNRB) of £175,000.

Combined, this gives each person a tax-free allowance of £500,000, and a married couple or civil partners can combine their allowances to pass on up to £1 million tax - free if the estate qualifies.

In addition to these major allowances, each individual can gift £3,000 per year tax-free.

This is known as the annual gifting exemption. If not used, this allowance can be carried forward for one year.

Married couples can combine their allowances to gift up to £6,000 each year with no impact on their estate.

Finally, regular gifts out of surplus income - such as monthly transfers to children or contributions to grandchildren’s school fees - are also exempt from inheritance tax, provided they do not affect the donor’s standard of living and are documented properly.

Together, these reliefs give married couples the opportunity to pass on a significant amount of wealth tax-free, as long as their estate is structured correctly and the rules are applied carefully.

7. What If One Spouse Is Non-Domiciled?

If one spouse is non-UK domiciled, the spouse exemption is limited to £325,000.

However, the non-domiciled spouse can elect to be treated as UK domiciled, allowing full access to the unlimited spousal exemption and the ability to transfer unused allowances.

This is a crucial consideration for internationally mobile couples.

8. What Married Couples Often Overlook

Even with generous reliefs, many couples make simple mistakes that cost their families dearly:

• Jointly owned assets not equalised before the second death

• Wills that don’t consider both nil-rate bands

• Failing to use exemptions during life (e.g. gifting or insurance in trust)

• Assuming that simply having a will is enough

How Belgravia Capital Wealth Management Can Help Couples Diminish IHT Liabilities

We specialise in helping married couples plan their estates with clarity and tax efficiency. Our services include:

• Calculating your combined IHT exposure

• Creating joint estate strategies to use both allowances

• Reviewing wills and gifting opportunities

• Insurance planning to cover IHT liabilities

• Trust planning to protect vulnerable beneficiaries

We help couples protect each other and their children with minimum loss to tax.

Conclusion: Which Inheritance Tax Applies to Married Couples?

If you’re married or in a civil partnership, the tax system offers powerful reliefs, but only if you use them properly.

With smart planning, you can pass on up to £1 million tax-free, and significantly reduce (or eliminate) any inheritance tax bill that follows.

The key is acting together, and acting early.

Contact us at contact@belgraviacapital.co.uk for a personalised estate planning consultation designed for married couples.