Individuals can pass a home to their husband, wife or civil partner when they die. There’s no inheritance tax to pay if one does this.

This exemption applies regardless of the size of the estate being passed on.

However, it does not apply to long-term partners without the legal status of a marriage or civil partnership, so cohabiting couples could end up paying more.

If they leave the home to another person in their will, it counts towards the value of the estate.

Inheritance tax receipts reached £5.7billion between April and December 2023 – an increase of £0.4billion compared to the same period in 2022, according to new figures from HMRC.

By the end of the financial year, it’s expected that the total amount collected will eclipse last year’s record of £7.1billion.

Only around four percent of deaths in the UK (27,000 estates) resulted in an inheritance tax (IHT) bill in 2020-21, but frozen thresholds and rising house prices are set to drag more people into the net.

By 2028-29 the Office for Budget Responsibility expects some 43,600 estates, or 6.27 percent of deaths, will be liable.

To avoid getting caught in the IHT net, cohabiting couples are urged to plan ahead as a way to potentially save thousands.

Experts at Coles Miller explained that one solution for some cohabiting couples is a civil partnership. They’re as valid as any wedding.

Anthony Weber, Partner at the law firm said: “This might seem like a small and semantic distinction. But if you’re a couple that doesn’t want to marry, it’s an important one that could spare you the misery of paying IHT at 40 percent. So please think about it.

“After all, it’s your life. It’s your money. You worked hard for it. You paid tax to earn it. You probably paid tax on the interest.”

Spousal exemption

This spousal exemption is based on the principle that couples should be able to pass on their assets to each other without incurring a tax liability.

Britons don’t need to use their £325,000 nil-rate band – or their £175,000 property nil-rate band – to leave money/property to their spouse.

So people could leave up to £500,000 to their children (or anyone else) and the rest to their spouse/civil partner, and the taxman won’t see a penny of it.

The exemption only applies only to spouses and civil partners. Unmarried partners, regardless of how long they have been together, are not eligible. Spouses and civil partners are also not subject to tax on gifts exchanged between them, regardless of the amount.

Another benefit for families, regardless of marital status, is the increased threshold for those leaving their home to their direct descendants.

When they do this, the tax-free threshold can increase to £500,000, provided the home is going to their children or grandchildren

Mr Weber continued: “Please don’t put off your Inheritance Tax planning. Gently trickling money to your loved ones year after year can cut a future IHT bill dramatically. And the sooner you start, the more successful you’ll be. Best of all, it doesn’t have to be complicated.”

He shared some suggestions on how people can cut their IHT bill:

• Make a will – otherwise what happens to your estate will be out of your control.
• Drip-feed money to your loved ones within the HMRC gift limits ie through small gifts, wedding/civil partnership gifts, or regular payment allowances
• You can give away larger sums under the Potentially Exempt Transfer (PET) rules – but you have to survive for a further seven years for the transfer be 100 percent IHT-free.
• Consider a lifetime trust – IHT does not become liable until the death of the surviving partner. But you will need expert legal advice.
• Giving money to charity can reduce the IHT rate on your entire estate – your loved ones would see more money if you were to give 10 percent of your estate to charity (rather than eight percent).