HOW WILL MY TERMINALLY ILL WIFE’S DEATH AFFECT OUR CHILDREN’S INHERITANCE TAX BILL?

In our weekly series, readers can email any question about their finances, to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot Financial Planning and has worked in financial services for 25 years. If you have a question for her, email us at [email protected]

Question: My wife is terminally ill, and upon her death, I am considering selling the family home and buying something smaller. My query is that any new property would be in my name only, and in the event of my death, would the ‘spousal’ allowance on inheritance tax still apply to whatever is left of my estate, or would it be capped at the current £ 500,000, as it is with property?

Answer: This is an incredibly difficult time, and before diving into the technicalities, it’s worth pausing to acknowledge the emotional weight of the situation. Planning your finances while caring for a terminally ill spouse is something no one ever wants to face. But it’s also when clear, thoughtful planning can make a lasting difference for those left behind.

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Inheritance tax is charged at 40 per cent above a threshold known as the nil-rate band (NRB). The inheritance tax system does allow spouses to transfer unused allowances between each other.

That includes both the standard NRB of £325,000 and the additional residence nil-rate band (RNRB), which is currently £175,000. These figures are frozen until 2030 under the current government policy.

If someone dies without having used all (or any) of their NRB or RNRB, it can be transferred to their surviving spouse or civil partner and used upon their later death. So, in theory, your estate could pass on up to £1 million tax-free (£325,000 plus £175,000 from you, plus the same again from your late spouse), provided the conditions are met.

Will you still qualify for the RNRB?

This is where things get more specific. The RNRB is only available when a qualifying residence is left to direct descendants, such as children or grandchildren.

The house doesn’t have to be in both names; it can be in the name of the surviving spouse only, and you can still claim the RNRB even if the property is bought after your spouse’s death, as long as it meets the conditions at the time of your death.

What matters is that when you die, you leave a qualifying property worth at least £350,000 (or more if you plan to claim both the RNRB) to direct descendants.

So, if you downsize and buy a smaller property, say worth £350,000 or more, in your own name after your wife’s death, you should still qualify for the full combined RNRB of £350,000, provided you leave that property to children or grandchildren in your will.

Even if you purchased the property in your sole name after her death, you still benefit from her unused RNRB, because you were married at the time of her death, and she didn’t use hers.

There are a few scenarios where the full allowance might not be available. For example, if someone were to remarry, they could lose the unused allowances.

Inheritance tax is tied to the spouse at the point of death, so remarrying would link your estate planning to a new spouse instead. That’s not to say people shouldn’t remarry for emotional or practical reasons, but it’s a key point for financial planning.

Another reason you might not get the full allowance is if you leave the property to someone other than direct descendants, for example, to a niece, nephew, or friend. The RNRB only applies when the property passes to lineal descendants.

Finally, the property must be worth enough to absorb the RNRB. If your final home is only worth, say, £100,000, you can’t claim the full £175,000 even if you’re entitled to it.

This is a good example of how inheritance tax planning is not just about tax, it’s about timing, relationships, and choices.

Provided you remain unmarried, leave your new property to direct descendants, and ensure the home is worth enough to meet the threshold, you should be able to claim your wife’s unused allowances and pass on up to £1 million tax-free.

For now, your focus should rightly be on supporting your wife and making practical plans at a pace that feels manageable. But when the time comes, consider revisiting your will and estate plan to ensure everything is in order, and speak with a financial adviser if you need help navigating the details.

2025-05-09T05:53:48Z