How marriage changes inheritance tax and capital gains between partners

Martin and Leah have lived together for 22 years, own a house jointly and have two grown-up children. They assumed that, after so long, the law treated them much like a married couple. For tax on what one leaves the other, and on assets moved between them, it does not, and the difference can run to six figures.

This is general information on the rules in 2026/27. Anyone planning an estate should take advice from a solicitor or tax adviser.

The spouse exemption for Inheritance Tax

Inheritance Tax is normally charged at 40% on the part of an estate above the £325,000 threshold, the nil-rate band. There is normally none to pay on anything left to a spouse or civil partner, and none on gifts between them during life.

One limit applies. Since 6 April 2025, Inheritance Tax uses long-term UK residence instead of domicile. Where the person giving is a long-term UK resident but their spouse or civil partner is not, HMRC’s manual says the exemption is limited to the nil-rate band at the date of transfer, currently £325,000.

Passing on an unused threshold

Because a spouse can inherit everything tax-free, the first partner to die often uses little of their own threshold. GOV.UK says any unused threshold can be added to a husband’s, wife’s or civil partner’s threshold when they die.

There is also the residence nil-rate band of £175,000, available when a home is left to children (including adopted, foster and stepchildren) or grandchildren. An unused residence band passes to a surviving spouse in the same way, up to 100% of their own. Together, a married couple can pass on up to £1 million (2 × £325,000 plus 2 × £175,000) before Inheritance Tax applies. The residence band is reduced by £1 for every £2 that an estate is worth over £2 million.

Both bands are frozen. Budget 2025 confirmed the nil-rate band will stay at £325,000 and the residence nil-rate band at £175,000 until 5 April 2031.

A married couple can pass on up to £1 million before Inheritance Tax applies. An unmarried couple has two separate £325,000 thresholds that cannot be shared.

How the same estate fares married and unmarried

The table follows one couple through both deaths, married and unmarried, with everything left to the survivor and then to the children.

Assumes a jointly owned home worth £700,000 that goes to the children at the second death, no lifetime gifts, no debts, no other reliefs and no change in values. For the unmarried couple, the first estate gets only the £325,000 band, because the residence band applies to homes left to direct descendants, not to a partner. Illustrative only.

Capital Gains Tax between spouses

There is no Capital Gains Tax on assets given or sold to a husband, wife or civil partner in a tax year in which the couple lived together. HMRC calls this a “no gain/no loss” transfer: the receiving partner takes over the original cost, and if they later sell, the gain is measured from when it was first bought.

Each person has their own annual exempt amount, £3,000 in 2026/27, and their own rate: 18% on gains within the basic rate band and 24% above it. A couple can therefore use both exempt amounts, and sometimes a lower rate, by having the partner with more room realise part of a gain.

What happens on separation

For disposals on or after 6 April 2023, separating spouses and civil partners can make no gain/no loss transfers until the end of the third tax year after the year they stopped living together, or until the divorce or dissolution is finalised if sooner. There is no time limit for assets covered by a formal divorce agreement.

Where unmarried couples stand

For cohabiting partners there is no spouse exemption, no transfer of an unused threshold and no no gain/no loss rule. In England and Wales a surviving cohabitant has no automatic right to inherit if their partner dies without a will, though they may be able to claim through the courts. The Ministry of Justice has consulted on giving qualifying cohabitants some rights on intestacy, but these are proposals, not law. A will is the basic step for any unmarried couple.

Who this matters for, and what to check

• Unmarried couples who own a home together, especially with more than £325,000 each.
• Executors of a surviving spouse’s estate, who should check for an unused threshold to claim.
• Couples where one partner is not a long-term UK resident, who should get specialist advice.
• Spouses selling shares with a gain; income from shares is a separate matter, covered in when dividends need to be reported to HMRC.
• Separating couples, who now have longer to divide assets without Capital Gains Tax.

What to keep in mind

Marriage or civil partnership turns two separate thresholds into a combined allowance of up to £1 million, and lets a couple move assets between themselves without Capital Gains Tax. Cohabiting partners, however committed, get none of this. The thresholds are frozen until April 2031. For anything beyond the basics, a solicitor or tax adviser can look at the whole picture.