IHT and Divorce: How Separation and Divorce Affect Inheritance Tax and Your Will
The spousal IHT exemption ends at decree absolute — transfers to a former spouse after that point are fully chargeable. Court financial orders are exempt under s11 IHTA 1984. Separation does NOT revoke your will or end the spousal exemption — only the final divorce order does. A new will is essential immediately on separation.
IHT Spousal Exemption Through the Divorce Process
| Stage | Spousal Exemption | Notes |
|---|---|---|
| Married — living together | Full unlimited exemption | Lifetime gifts and death transfers between spouses are completely exempt from IHT. |
| Separated (but not legally divorced) | Full unlimited exemption | Separation does not end the legal marriage — the IHT spousal exemption continues until the decree absolute. Separated couples who do not update their wills may die with estates passing to the estranged spouse tax-free. |
| Decree Nisi (conditional order) issued | Full unlimited exemption — not yet ended | The decree nisi / conditional order does not end the marriage. The marriage continues until the decree absolute / final order. |
| Decree Absolute / Final Order issued | Ends — former spouse is no longer a spouse | Divorce ends the marriage and the spousal exemption. Any transfer from this point to the former spouse is treated as a gift to a stranger for IHT — potentially a chargeable PET or CLT. |
| Transfer under court financial order (MCA 1973) | IHT-exempt under s11 IHTA 1984 (not gratuitous benefit) | Transfers made in compliance with a court order under MCA 1973 or a written separation agreement (in limited circumstances) are not transfers of value for IHT — they are 'dispositions not intended to confer gratuitous benefit'. This exemption covers property, cash, and pension earmarking under court orders. |
| Death during divorce proceedings (before decree absolute) | Full spousal exemption — still married at death | If one spouse dies before the divorce is finalised, the survivor remains the legal spouse and inherits under the will (or intestacy) with full IHT exemption. This can conflict with the deceased's intentions — making a new will during proceedings is essential. |
Frequently Asked Questions
Does divorce affect Inheritance Tax on transfers between ex-spouses?
Yes — significantly. While the marriage continues (including during separation), all transfers between spouses are completely exempt from IHT under s18 IHTA 1984. From the date of the decree absolute (or 'final order' under the new divorce law from April 2022), the marriage is dissolved. The parties are no longer spouses for IHT purposes. Any transfer from an ex-spouse after the decree absolute is treated as a transfer to a third party — a potentially exempt transfer (PET) subject to the 7-year clock, or (if the transfer is into trust) a chargeable lifetime transfer. The unlimited IHT spousal exemption no longer applies. This is a significant change that divorcing couples and their solicitors often overlook when structuring the financial settlement.
Are transfers under a divorce financial order exempt from IHT?
Yes — transfers made pursuant to a court order under the Matrimonial Causes Act 1973 (or equivalent), or a written separation agreement enforceable as a court order, are treated as 'dispositions not intended to confer gratuitous benefit' under s11 IHTA 1984. They are not transfers of value for IHT purposes. This exemption applies regardless of whether the decree absolute has been issued. The effect is that property transfers, lump sum payments, periodical payments, and pension earmarking orders in financial remedy proceedings are all outside the scope of IHT — provided they are made under or pursuant to the court order. If parties agree a transfer informally (e.g. by consent outside the court process, without a consent order), the s11 exemption may not apply and the transfer could be a chargeable PET.
What happens to the IHT position if someone dies during divorce proceedings before decree absolute?
If one spouse dies during divorce proceedings — after issuing the divorce petition but before the decree absolute — the parties are still legally married at the date of death. The survivor remains the legal spouse. On the deceased's estate: (1) The IHT spousal exemption applies in full — any assets left to the surviving spouse pass tax-free. (2) The will (if any) continues to operate in favour of the surviving spouse, who can claim under it. (3) If there is no will, intestacy rules apply and the surviving spouse may inherit under the statutory legacy. The result may be that the estranged spouse inherits the entire estate tax-free — exactly the opposite of the deceased's intentions. This risk is why solicitors advise changing the will immediately on separation, not waiting until the divorce is finalised. Under the Wills Act 1837, a will is not revoked by separation or the issue of a divorce petition — only the decree absolute revokes any gift to a spouse.
Does divorce revoke a will in England and Wales?
Partly — but not entirely. Under s18A Wills Act 1837 (as amended by Administration of Justice Act 1982), divorce (the decree absolute or final order) revokes: (1) any appointment of the former spouse as executor or trustee; and (2) any gift or beneficial provision in the will to the former spouse. The former spouse is treated as having predeceased the testator. The rest of the will remains valid. This means: if the will left everything to the spouse, the estate passes as if there were no will — on partial or total intestacy. The result may be the deceased's assets going to their parents or siblings rather than their children. Separation does not revoke any part of the will — only the final divorce order has this effect. The practical solution: make a completely new will at the earliest opportunity after any significant relationship change.
What IHT planning should be done after a divorce?
Post-divorce IHT planning should address: (1) Make a new will immediately — the partial revocation on divorce may leave the estate without a valid residuary beneficiary. Ensure the will maximises the nil-rate band, RNRB (if children are beneficiaries and you own property), and any applicable BPR/APR. (2) Review pension nominations — death-in-service and pension death benefits are typically outside the estate but should be updated to remove the former spouse as nominated beneficiary. From April 2027, defined contribution pension pots will be subject to IHT — updating nominations is more important than ever. (3) Reassess the surviving estate size — the financial settlement may have significantly changed the estate value and the IHT exposure. The former NRB trust structure (if used) may need recalculating. (4) Lifetime gifting — post-divorce, the 7-year PET clock and annual exemptions become the main IHT reduction tools rather than the spousal bypass route.
Can a separated (but not divorced) spouse inherit the estate tax-free?
Yes — a separated spouse who has not yet obtained the decree absolute remains the legal spouse for all purposes, including IHT. Assets left to them (whether by will or on intestacy) pass completely exempt from IHT under s18 IHTA 1984. There is no IHT charge simply because the couple were living apart or had issued divorce proceedings. The IHT spousal exemption depends only on the legal marital status — not on cohabitation, separation, or the state of the relationship. This is why updating the will and pension nominations immediately on separation — before the divorce is finalised — is critical for anyone who does not want assets to pass to their estranged spouse.
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