Inheritance Tax and Divorce: IHT Implications When Spouses Separate
The IHT spouse exemption ends the moment a divorce is finalised. If you die before updating your will, assets left to your ex-spouse could attract 40% IHT. Here is what changes at each stage of the divorce process — and what you need to do urgently.
IHT Position at Each Stage of Divorce
| Stage | IHT spouse exemption? | Will effect on death | Intestacy rights |
|---|---|---|---|
| Separated (no court proceedings yet) | Yes — still married | Spouse inherits as written | Spouse inherits under intestacy |
| Conditional order (decree nisi) made | Yes — still married | Spouse inherits as written | Spouse inherits under intestacy |
| Final order (decree absolute) granted | No — divorced | Gifts to ex-spouse lapse (s18A Wills Act 1837); appointment as executor also lapses | No intestacy rights |
| After final order — no new will made | No exemption | Pre-divorce will applies minus lapsed gifts to ex-spouse — rest of estate may pass as if ex-spouse had died | Ex-spouse gets nothing |
Urgent Actions on Separation
Do not wait for the final order — take these steps as soon as you separate:
Make a new will
Appoint new executors and name new beneficiaries. Your new will can exclude your estranged spouse — but remember, until the final order the estranged spouse still has intestacy rights (the will can override these for the will-covered estate, but cannot override intestacy).
Update pension expression of wishes
Tell your pension scheme to direct any death-in-service lump sum to someone other than your estranged spouse. This sits completely outside the will — the pension trustees use their discretion guided by the current expression of wishes.
Update life insurance nominations
Any policies written in trust for your spouse should have the trust varied or a new policy taken out naming new beneficiaries.
Review LPAs
If your estranged spouse is your property and financial affairs attorney or health and welfare attorney, revoke the LPA by deed of revocation and register a new one with a trusted alternative attorney.
After the final order: check transferable NRB
The transferable nil-rate band can only be passed between spouses who were married at the date of death. Once divorced, no transferable NRB can pass to the ex-spouse. Review your overall IHT position.
Frequently Asked Questions
Does divorce affect the IHT spouse exemption?
Yes — and the timing is critical. The IHT spouse/civil partner exemption (under s18 IHTA 1984) allows assets to pass between spouses completely free of IHT with no limit. This exemption applies as long as the parties are legally married (or in a civil partnership) at the date of death. The exemption ends on the date the divorce becomes final — in England and Wales, this is the date the conditional order (previously 'decree nisi') is made final (previously 'decree absolute'), which happens at least 6 weeks after the conditional order. Key risk: if one spouse dies after the conditional order is made (meaning divorce proceedings are in progress) but before the final order, they are still legally married. The spouse exemption still applies. But if one spouse dies after the final order, they are divorced — no exemption. The period between conditional and final order is a window where many people update neither their will nor their financial affairs.
What happens to a will when you get divorced?
In England and Wales, under s18A Wills Act 1837 (as amended), when a marriage or civil partnership is dissolved or annulled: (1) Any gift in the will to the former spouse or civil partner lapses — it takes effect as if the former spouse had died on the date of the divorce; (2) Any appointment of the former spouse as executor also lapses. Note critically what this does NOT do: it does NOT revoke the entire will. The rest of the will stands. This means: if the former spouse was the sole beneficiary and sole executor, the will no longer names any executor and the estate falls partly or wholly into residue (which itself may pass to other named beneficiaries or under intestacy if there are no others). The practical implications depend heavily on the will's drafting. The safest course is to make a new will immediately on separation — not to wait for the divorce to be finalised.
Are transfers between spouses as part of a divorce settlement subject to IHT?
Transfers of assets between spouses (or former spouses) made pursuant to a court order in connection with the divorce are exempt from IHT under s11 IHTA 1984 ('transfers for maintenance etc'). Broadly, transfers ordered or approved by the court as part of the financial settlement are treated as not being transfers of value for IHT purposes. This exemption covers: lump sum payments, transfers of property (e.g. transfer of the matrimonial home), and pension sharing orders. What it does NOT cover: gifts made before or after the divorce that are not part of the court-ordered settlement; lifetime transfers made by one party to the other as part of an informal arrangement not endorsed by the court. After the divorce is finalised and the parties are former spouses, any further transfers between them are ordinary lifetime transfers (potentially chargeable to IHT if the donor dies within 7 years).
If I die during the divorce proceedings (before the final order), who inherits?
If one spouse dies during the divorce proceedings before the final order (conditional order made but not yet finalised): (1) The parties are still legally married at the date of death; (2) If the deceased had a will, the surviving spouse remains the beneficiary named in the will — the s18A Wills Act 1837 lapse rule applies only on dissolution/annulment, not during proceedings; (3) The IHT spouse exemption still applies — assets passing to the surviving spouse are exempt from IHT; (4) The surviving spouse inherits as a spouse under the will or intestacy — regardless of the state of the relationship. This means: during a bitterly contested divorce, if one party dies before the final order, the other party may inherit everything. A new will made during the proceedings (specifically excluding the estranged spouse) is essential. Note: it is not possible to revoke a spouse's intestacy rights before the final order, but the will can direct the estate away from the spouse to other beneficiaries.
What IHT planning should I do on divorce or separation?
Key actions on divorce or separation: (1) Make a new will immediately on separation — do not wait for the final order. The new will should explicitly name new executors and beneficiaries. Note that until the final order, your estranged spouse retains intestacy rights even if excluded by the will; (2) Update pension expression of wishes — this sits outside the will; the pension trustees will use the expression of wishes to decide who receives any death-in-service lump sum; (3) Review life insurance nominations — policies written in trust for a spouse should be updated to new nominated beneficiaries; (4) Check LPAs — if your estranged spouse is your attorney under a Lasting Power of Attorney, this will need revoking and a new LPA appointing a different attorney; (5) After the final order, review the nil-rate band position — the deceased's transferable nil-rate band cannot be passed to an ex-spouse; (6) Take specialist IHT advice if the estate is large — the divorce financial settlement may itself have IHT implications.
Update Your Will the Day You Decide to Separate
The WillSafe kit lets you make or update your will quickly and affordably. Do not let your estranged spouse remain as your executor and sole beneficiary through inaction. From £19.97 for England and Wales.