Inheritance TaxWillsSurvivorship Clauses and Commorientes

Survivorship clauses between spouses will often include provisions so that the survivorship period will not apply if they both die in circumstances where it is uncertain who survived the other, for example in a plane crash.

The reasons for this inclusion is a very specific inheritance tax advantage where spouses die together, and it cannot be determined which of them died first.

In succession law, it is impossible for two people to die at the same time. Instead, S184 Law of Property Act 1925 provides that where the order of deaths are uncertain, a younger person is presumed to have survived an elder person. This is known as the Commorientes rule.

This presumption applies to gifts by Will and assets passing by survivorship under a Joint Tenancy. It does not apply to assets passing by intestacy.

For the purposes of calculating inheritance tax however, it is possible for people to be seen as dying at the same time.

When calculating the inheritance tax on the elder spouse’s estate, anything the younger inherits will benefit from the spousal exemption.

When calculating the inheritance tax on the younger spouse’s estate, anything they have just inherited from their older spouse will be disregarded. Inheritance tax is only calculated on assets owned immediately before death and as they died at the same time as their spouse, they have not actually inherited the elder spouse’s estate at the point of calculating inheritance tax.

In addition, any unused NRB or RNRB from the elder spouse will also be available to be transferred to the younger.

This situation is best explained by way of an example:

Example

Mr and Mrs Jones die in a plane crash and it is not possible to work out who died first. Both have Wills leaving everything to each other and then to their children. They each own assets worth £500,000.

Mr Jones is older than his wife, he is seen as dying first and his assets pass to her. All assets of both Mr and Mrs Jones will then pass by her Will to their children.

Mr Jones’ estate will incur no Inheritance Tax, as the spousal exemption will apply to the assets passing from him to his wife.

When calculating the Inheritance Tax for Mrs Jones’ estate, only assets that she owned immediately before her death are considered. As before her death she only owned £500,000 worth of assets, she is only seen as owning those. Her own NRB, combined with the unused NRB of Mr Jones, is enough to ensure that no Inheritance Tax is due.

Mr Jones’ estate therefore passes to Mrs Jones free of Inheritance Tax and passes through Mrs Jones’ estate without being considered for Inheritance Tax.

 

* For the purposes of this article, all references to a spouse also include civil partners. *