IHT and Divorce UK (2026): How Divorce Affects Inheritance Tax

No — the spouse exemption under IHTA 1984 s.18 ceases completely when the divorce is finalised. The critical moment is the grant of the Final Order (previously called Decree Absolute, renamed under the Divorce, Dissolution and Separation Act 2020): (1) Before the Final Order: the couple are still legally married. The full spouse exemption applies — lifetime gifts between them are exempt from IHT; assets passing on death to the surviving spouse are exempt. Even if separated, the exemption applies while legally married; (2) From the Final Order onwards: the couple are no longer spouses. The spouse exemption is lost immediately. Gifts between them after the Final Order are treated as gifts between strangers — potentially exempt transfers (PETs) if to an individual, starting the 7-year clock. Larger gifts could potentially be chargeable lifetime transfers if into a trust; (3) Civil partnerships: the same rules apply on dissolution — the exemption ceases at the final dissolution order; (4) Practical timing issue: where a wealthy spouse plans to make significant gifts or estate arrangements, the timing relative to the Final Order matters. Gifts made before the Final Order remain exempt (subject to sham transaction rules). Gifts made after lose that exemption; (5) Property transfers as part of the financial settlement: transfers of property between divorcing parties under a court order (or agreement in contemplation of a court order) can be treated as exempt from IHT as they are not gratuitous dispositions. However, gifts beyond what is ordered by the court are not exempt. Take specialist advice on the IHT treatment of any financial settlement; (6) The 7-year rule for post-divorce gifts: if one ex-spouse makes a significant gift to the other after the Final Order (perhaps continuing to support an ex-spouse financially), that gift starts a 7-year PET clock. If the donor dies within 7 years, the gift may be pulled back into the estate for IHT.

No — the transferable nil-rate band (TNRB) under IHTA 1984 s.8A can only be claimed from a deceased spouse or civil partner. Once divorced, a former spouse is no longer a spouse or civil partner. The key rules: (1) If the couple divorced and one ex-spouse later died: the surviving ex-spouse cannot claim any transferable NRB from the deceased ex-spouse. Even if the deceased ex-spouse never used any of their NRB, the surviving ex-spouse has no claim to it. The unused NRB is simply lost for TNRB purposes; (2) If one spouse died before the divorce was finalised: the surviving spouse (still legally married at date of death) CAN claim the transferable NRB from the deceased's estate. Death terminates the marriage — the divorce proceedings simply lapse; (3) Remarriage and multiple TNRB: a surviving spouse can potentially claim up to 100% additional NRB from deceased previous spouses, but only from legally married spouses — not from divorced ex-spouses. A divorced person who remarries accumulates no TNRB from their first marriage (provided it ended in divorce rather than death); (4) Long-term planning impact: for couples who have built their IHT planning around the expectation of transferring the full NRB (£325,000 each = £650,000 combined) plus the transferable RNRB, a divorce can significantly increase the IHT liability on the survivor's death. For a couple with a £1.5 million estate, losing the transferable NRB could increase the IHT bill by £130,000; (5) What to do: review your IHT plan immediately on divorce. The available NRB is now only £325,000 (not £650,000). The available RNRB may also be reduced if the family home passes to a new spouse rather than directly to children.

Divorce has a partial but important effect on a will made before the divorce: under Wills Act 1837 s.18A (inserted by Administration of Justice Act 1982): (1) What s.18A does: when a marriage ends in divorce (or civil partnership ends in dissolution), any gift in a will made before the divorce to the former spouse, and any appointment of the former spouse as executor or trustee, takes effect as if the former spouse had died on the date the marriage ended. The will itself remains valid — it is not revoked by divorce. Only the provisions benefiting the former spouse are struck out; (2) What this means in practice: (a) specific legacy to ex-spouse: treated as if the ex-spouse predeceased the testator — if there is a substitutionary gift, that applies; if not, the gift lapses and falls into residue; (b) residuary gift to ex-spouse: lapses and passes on intestacy if there is no substitute gift; (c) appointment as executor: ex-spouse can no longer act as executor — if there is no co-executor, the residuary beneficiaries may need to apply for letters of administration with will annexed; (d) appointment as trustee: same — struck out; (3) CRITICAL exceptions to s.18A: (a) the section ONLY applies to wills made BEFORE the divorce. If you made a new will after the divorce, s.18A does not apply — all provisions in that post-divorce will stand as written; (b) the section applies only to marriages that ended in divorce or dissolution, not to separation alone. If you separate but do not divorce, your will stands in full; (4) What you should do: make a new will immediately after divorce. The s.18A 'automatic' protection is a safety net, not an estate plan. A new will gives you full control — it covers guardianship, trustees, new beneficiaries, updated legacies, and avoids the uncertainty of whether s.18A applies to your specific provisions.

No — this is a critical point that catches many people out. Unlike the position with a will (where divorce voids gifts to the former spouse), divorce does NOT automatically revoke a Lasting Power of Attorney under the Mental Capacity Act 2005: (1) The MCA 2005 position: the Mental Capacity Act 2005 and the LPA regulations contain no provision for automatic revocation of an LPA on divorce. The LPA continues in full force after the divorce. If your ex-spouse is your attorney under a Property and Financial Affairs LPA, they retain full authority to manage your finances and property after the divorce unless you take active steps to revoke the LPA; (2) Contrast with wills: under WA 1837 s.18A, divorce automatically voids the ex-spouse's appointment as executor and trustee. No equivalent protection exists for LPAs; (3) How to revoke an LPA: to revoke an LPA you must: (a) have mental capacity to do so; (b) complete a formal deed of revocation (signed and witnessed — same formalities as the original LPA); (c) notify the Office of the Public Guardian (form LPA005 or a letter confirming revocation); (d) notify all attorneys. The OPG will cancel the registration. Until this is done, the LPA is live; (4) What to do immediately after divorce: revoke your ex-spouse's LPA. Make new LPAs appointing your chosen new attorneys (a trusted family member, friend, or professional). This is urgent — if you have an accident after the divorce but before revoking the LPA, your ex-spouse may be legally entitled to manage your affairs; (5) Divorce and EPA: Enduring Powers of Attorney (pre-October 2007) are also not automatically revoked by divorce — the same active revocation steps are required.

Comprehensive checklist for IHT and estate planning after a divorce: (1) URGENT — new will: make a new will immediately. Do not rely on Wills Act 1837 s.18A as your estate plan. Your new will should: name new executor(s); update beneficiaries (children, new partner, family); include a guardian clause if children are under 18; consider trust provisions for children; address whether RNRB applies (family home passing to direct descendants); (2) URGENT — revoke ex-spouse's LPA: if your ex-spouse is your LPA attorney (either P&FA or H&W), revoke immediately using a formal deed of revocation. Register the revocation with the OPG. Make new LPAs; (3) URGENT — pension nominations: contact every pension provider and update the expression of wishes form. Pension trustees have discretion — your ex-spouse may still receive a lump sum on death if the nomination has not been updated; (4) Update life insurance: change the beneficiary/trustee arrangements on any life insurance written in trust. If the trust names your ex-spouse as trustee or beneficiary, take steps to update it; (5) Review death in service: contact HR to update the expression of wishes form for any death in service benefit; (6) Reassess IHT position: your IHT threshold is now £325,000 NRB only (not £650,000). RNRB still available if home passes to direct descendants. Recalculate your IHT exposure. Consider gifting strategy (annual £3,000 exemption; PETs; normal expenditure out of income) and whether life insurance in trust is needed to cover the IHT liability; (7) CGT on asset transfers: property and other assets transferred to your ex-spouse as part of the financial settlement benefit from no-gain/no-loss treatment until the end of the tax year of separation — extended to 3 years from separation or indefinitely for assets transferred under a formal court order or a written agreement, following Finance (No.2) Act 2023 changes; (8) Consider cohabitation agreement with new partner: if you begin living with a new partner without remarrying, your will and intestacy planning is critical — cohabitants have no automatic inheritance rights; (9) Review any trusts: check whether your ex-spouse is named as a trustee or beneficiary in any trust. Seek legal advice on how to change trustees or beneficiaries.