I was widowed after 30 years of marriage, then remarried 4 years ago. Regarding inheritance tax - should the worst happen - would I be entitled to use both my first husband's unused allowance and my present husband's (with my own)?
For those who don’t know, it is possible to carry over any unused inheritance tax (IHT) allowance (often referred to as the nil-rate band) following the death of a spouse to set it against the value of your estate upon your death.
As such it is possible for the surviving spouse to have an IHT threshold of up to £650,000 before their estate is subject to Inheritance tax. For more details please read my article Reader Q: Will my threshold for gifts be £325k or £650k - given that I inherited my husband's IHT threshold?
Where someone remarries and survives 2 spouses then it is possible to inherit any unused IHT allowance from both, although the inherited amount can not exceed 100% of the current IHT threshold i.e. £325,000. So in most cases there is no benefit if the most recently deceased spouse does not utilise his/her IHT threshold, by for example leaving all their assets to their surviving spouse, if the first spouse to die had not ustilised his/her IHT allowance.
Prior to the legislation change that allowed the inheritance of IHT thresholds it was regular practice for married couples to set up discretionary will trusts to ensure that both IHT thresholds were fully utilized upon their deaths. But interestingly your question highlights one area where discretionary will trusts, set up by a solicitor, still have IHT saving benefits.
You don’t say whether your 1st husband failed to utilise all of his IHT allowance. But talking hypothetically let’s say that following a spouse’s death (who passed all their assets to the surviving spouse and therefore did not use their IHT allowance) the survivor remarries. If the survivor were to survive her second husband there would be no benefit gained from inheriting his IHT allowance, as she would have inherited 100% of her 1st husband’s allowance. One way around this would be for the 2nd husband to include a discretionary trust within his will for the full amount of his IHT threshold with the survivor as just one potential beneficiary. It would then be possible for the surviving spouse to enjoy some of the benefit of the trust until her death. So essentially the couple will have utilized 3 IHT allowances.
However this is an incredibly complicated area of financial planning which I’ve just given a brief overview of. For more information please read this guide to 'nil-rate band & inheritance tax planning' and seek the help of a solicitor with experience of IHT planning.
I hope that helps