It is very common these days for people to live together in committed relationships but without marrying or becoming civil partners. People in this situation are strongly advised to make Wills providing for each other because the law does not recognise this living together arrangement as a legal relationship and it is unlikely to change in the near future.
There is no such thing as a "common law" husband or wife. Cohabitees do not have any legal right to their partner's estate if they die without making a Will or without putting their financial affairs in order. A Will enables cohabiting partners to make provision for each other and a good adviser will also discuss other matters such as pension benefits and life insurance to ensure that these are properly dealt with.
If a cohabitee dies without making provision for their partner, the partner may need to consider bringing a claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975. This Act enables certain people to make a claim for financial provision from an estate, whether or not there is a Will. However, this would mean the surviving partner paying for legal advice and the costs of the claim. There are hurdles to overcome in order for such a claim to be successful. A claimant has to demonstrate financial need and the claim may be defended by those who do have a legal right to the deceased's estate either under the Will or Intestacy Rules. The matter could result in a costly and stressful Court hearing.
Jointly owned property will usually pass automatically to the survivor if one owner dies, however, if land is owned by a couple as "tenants-in-common", the deceased's interest will not pass automatically to the co-owner but instead according to their Will or the Intestacy Rules. Unmarried couples therefore need to understand how they own jointly owned land and to make a Will to deal with their interest if the property is owned as tenants-in-common.
Couples who live together can also consider drawing up a Cohabitation Agreement to govern what they each bring to the relationship and how their assets will be divided if they break up. This would be helpful to document each party's intended financial contribution to acquiring a property and servicing the mortgage and out-goings. It could also cover financial responsibility for any children of the relationship. Matrimonial legislation would not apply to a cohabiting couple if they are not married.
Unmarried couples do not benefit from favourable Inheritance Tax exemptions. If spouses leave assets to each other on death, the full value is exempt from Inheritance Tax and so this is a great relief at a difficult time. If an unmarried person leaves assets worth more than their Inheritance Tax Allowance to their partner (currently £325,000), this could trigger an Inheritance Tax charge at the rate of 40% of the value over their allowance.
For example, if John leaves assets worth £400,000 to his partner, the Inheritance Tax bill would be £30,000 (40% of £75,000). This could be difficult to fund without selling assets.
Marrying is therefore good from a tax perspective. However, marrying also means that a couple has greater financial responsibility towards each other in the event that the relationship breaks down and so that must also be borne in mind.
If you would like to discuss making a Will or a Cohabitation Agreement, please get in touch with a member of our Private Client Department on 01242 574244.