If you’re opposed to inheritance tax, you probably believe it’s unfair to be forced to hand over hard-earned wealth to an undeserving Government. Yet even for those who support it, there’s a glaring injustice in the system that often gets overlooked. For if you are childless – whether single or married – whoever you leave your money to faces paying a lot more inheritance tax than everyone else.
Any single person has a standard tax-free inheritance tax (IHT) allowance of £325,000. Above this, a 40 per cent levy applies.
For those passing on a property to one or more descendants, there is an extra allowance of £175,000, known as a residence nil-rate band.
However, this does not apply to a childless single person.
It is a similar story with childless married couples, who get double the tax-free allowance of a single person at £650,000, but are also unable to take advantage of the residential allowance – missing out on the additional £350,000 of relief which couples with children get.
Owning an average-priced home in some parts of the country – let alone having a modest pension, which will count in inheritance tax calculations from April 2027 – can also push someone over the £325,000 threshold.
Other considerations for childless people include setting up power of attorney in case they fall ill.
‘If you don’t have children, planning your estate may seem like a minefield as it takes extra thought,’ says Rahul Kotecha at law firm Freeths. ‘Who will manage your affairs? Who should benefit from what you leave behind?’
Childless married couples get double the tax-free allowance of a single person at £650,000, but are unable to take advantage of the residential allowance – missing out on the additional £350,000 of relief which couples with children get (picture posed by models)
Adrian Murphy, chief executive of Murphy Wealth, adds: ‘Without obvious inheritees, it’s easy to believe you don’t have much to consider from an inheritance tax and planning perspective, but the reality is you could end up with more to think about than the ‘traditional’ family.’
Here, we explain how to protect your finances and plan inheritance if you don’t have children.
Cutting tax bills
Spending and gifting are always the easiest ways to reduce an inheritance tax bill – but the key is not to do it so freely you leave yourself short in later life, when you might face exorbitant care fees.
Childless individuals and couples may need to pay for care in their own home because they don’t have children to help and be more likely to need residential care sooner.
You can give away up to £3,000 a year, plus make unlimited small gifts of £250 free of inheritance tax.
Wedding gifts are also exempt, but the limit is £1,000 per person if they are not your children or grandchildren. For larger gifts, if you survive for seven years afterwards, these fall out of your estate for tax.
A will is essential for childless couples, says Fiona Mainwaring of law firm ORJ
You can also hand over regular sums from surplus income, but you should keep careful records.
Check the IHT403 form at gov.uk, which executors use to declare gifts after a death.
Experts suggest making a record of all gifts, especially any worth more than £250, and keeping it with your will. List what you gave to whom and when, and its value. Trusts are another way to beat IHT. But they come with costs so are not worth it unless you are very wealthy. You should get professional advice.
Childless people might also be inclined to give more to charity, and such bequests will be excluded from your estate for tax purposes. You can also reduce your inheritance tax rate from 40 per cent to 36 per cent if you give at least 10 per cent of your taxable estate to charity.
Power of attorney
Lasting Power of Attorney (LPA) is a legal failsafe, allowing a trusted nominee to make money and health decisions on behalf of those who can no longer make their own.
It’s crucial for childless people who might otherwise have nothing organised when they need it most – and it’s vital to choose someone who will act in your best interests.
Mr Kotecha stresses that your next of kin don’t automatically get legal authority to act for you. He says: ‘An LPA allows you to choose somebody you trust with your estate. This could be a parent, sibling, friend or even a professional.’
Get a will
It is common to sort out a will at the same time as power of attorney. Beneficiaries can be anyone you wish. Ian Cook, financial planner at Quilter Cheviot, says: ‘For those in a couple, this may mean opting to leave everything to your partner. However, those who are single may want to pass their wealth to a friend or family member, or even split assets between multiple people.’
A will is essential for childless couples, says Fiona Mainwaring of law firm ORJ. ‘Without one, assets are divided under the rigid rules of intestacy. This could mean distant relatives – with whom there may be little connection – benefit ahead of close friends or chosen causes.
‘If no relatives survive, the estate ultimately passes to the Crown.’
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