Inheritance Tax and Unmarried Couples: What You Need to Know

Many couples live together for years, or even decades, without getting married or entering into a civil partnership. They may share a home, finances, family life and long-term plans.

However, when it comes to inheritance tax, Wills and estate planning, unmarried couples are not treated in the same way as married couples or civil partners.

This can come as a shock, particularly where a couple have lived together for many years and assumed that their partner would automatically be protected if one of them died.

Why relationship status matters for inheritance tax

As a general rule, assets passing between spouses or civil partners are exempt from inheritance tax.

This can mean that, when the first spouse or civil partner dies, they may be able to leave their estate to the survivor without inheritance tax becoming payable at that stage. In some circumstances, unused inheritance tax allowances may also be transferred to the surviving spouse or civil partner.

The position for unmarried couples is different.

There is no equivalent general inheritance tax exemption simply because two people have lived together for a long time. A couple may have shared a home, bills, responsibilities and their lives for decades, but that does not automatically give them the same inheritance tax treatment as a married couple or civil partners.

For unmarried couples, this makes proper estate planning particularly important.

Does common law marriage exist in England and Wales?

One of the most common misconceptions is that living together for a certain period creates a “common law marriage”.

It does not.

There is no general legal status of common law husband or wife in England and Wales. Whether a couple have lived together for two years, twenty years or more, cohabitation alone does not give them the same inheritance rights as a spouse or civil partner.

This means that long-term commitment does not automatically create legal protection.

What happens if an unmarried partner dies without a Will?

The consequences are not limited to inheritance tax.

If someone dies without a valid Will, their estate passes under the intestacy rules. A surviving spouse or civil partner may have an automatic entitlement to some or all of the estate, depending on the circumstances.

An unmarried partner does not automatically inherit under the intestacy rules.

This can create a very difficult situation where a couple have lived together for many years but never made Wills. The surviving partner may then need to consider whether they can bring a claim against the estate, rather than simply inheriting automatically.

This can be stressful, costly and uncertain at an already emotional time.

Why Wills are so important for unmarried couples

For unmarried couples, having an up-to-date Will is one of the most important steps you can take.

A properly drafted Will can help make sure your wishes are clear and that the people you want to benefit from your estate are properly provided for.

Without a valid Will, your estate may not pass in the way you expect. This can be particularly concerning if you own a home together, have children, have been together for many years or have built your finances around shared responsibilities.

A Will can also sit alongside wider estate planning, including inheritance tax planning, life insurance, pensions and property ownership arrangements.

Should unmarried couples marry for inheritance tax reasons?

Marriage or civil partnership can have significant inheritance tax advantages, but it should not be viewed simply as a tax-planning exercise.

Whether marriage or civil partnership is right for a couple is a personal decision. From an estate planning perspective, however, it is important to understand that relationship status can have substantial legal and tax consequences.

The right arrangements will depend on the couple’s individual circumstances, including:

• the value and nature of their assets
• how any property is owned
• who they want to benefit on death
• whether they have existing Wills
• whether they have children or dependants
• pension and death benefit nominations
• life insurance arrangements
• lifetime gifts and wider inheritance tax planning

The key point is not that couples should marry for tax reasons. It is that unmarried couples should understand the legal and tax position and make informed decisions.

Is the law changing for unmarried couples?

The position of unmarried couples has received increased attention in recent years, including discussion about whether cohabiting partners should have greater rights in certain circumstances.

However, unmarried couples should not assume that future legal reform will put them in the same position as spouses or civil partners, particularly for inheritance tax purposes.

For anyone planning now, the safest approach is to make suitable arrangements based on the current law rather than relying on possible future changes.

How can unmarried couples protect each other?

Unmarried couples should take time to consider whether their current arrangements reflect what they would want to happen if one of them died.

This may include checking whether:

• both partners have up-to-date Wills
• jointly owned property is held in the most appropriate way
• pension nominations are up to date
• death benefit nominations reflect current wishes
• life insurance remains suitable
• inheritance tax has been considered
• previous Wills or financial arrangements need to be reviewed
• the surviving partner would have sufficient financial security

These conversations can feel uncomfortable, but they are often much easier to deal with during your lifetime than after a death.

The key takeaway

For unmarried couples, living together does not automatically create the same inheritance tax treatment, inheritance rights or legal protections as marriage or civil partnership.

Two people may regard themselves as a family in every practical sense, but the law does not always treat them in the same way.

If you are concerned about inheritance tax, your Will or the position of an unmarried partner, our Wills and Probate team can advise you on the options available and help ensure that suitable arrangements are in place.

This article provides general information only and should not be treated as legal or tax advice.