Inheritance Tax rules in the UK place unmarried couples at a significant disadvantage compared with married couples and those in civil partnerships.
While spouses and civil partners can pass assets between them free of inheritance tax, this exemption does not apply to unmarried couples, regardless of how long they have lived together or how financially interdependent they are.
As a result, inheritance tax bills for unmarried couples can be substantial and, in some cases, financially devastating without proper planning.
Why Unmarried Couples Face Higher Inheritance Tax Bills
Under current UK inheritance tax rules:
- Anything left to a spouse or civil partner is exempt from inheritance tax
- Unused inheritance tax allowances can be transferred between spouses or civil partners
- This can allow up to £1 million to pass free of inheritance tax in some cases
These benefits do not apply to unmarried couples.
If one partner dies, only the standard nil-rate band of £325,000 is available. Any value above this threshold is generally taxed at 40 percent.
In addition, if an unmarried couple does not have Wills in place, the surviving partner has no automatic legal right to inherit under the rules of intestacy.
How Inheritance Tax Is Calculated for Unmarried Couples
When one partner in an unmarried couple dies, their estate includes:
- Their share of jointly owned property
- Their share of joint savings and bank accounts
- Other assets held in their sole name
If the deceased partner leaves everything to the surviving partner by Will, only the first £325,000 of the estate is usually exempt from inheritance tax.
The remainder is taxed at 40 per cent.
A Real-World Example: Inheritance Tax and Unmarried Couples
Consider the following scenario, based on real client situations.
Simon and Jane are an unmarried couple. They have lived together for many years and have Wills leaving everything to each other.
They own a property worth £500,000 and have joint savings. When one partner dies, half of the property and half of the savings form part of the deceased partner’s estate.
Because they are not married or in a civil partnership, only £325,000 of the estate is exempt from inheritance tax. The remaining value is taxed at 40 percent, creating a significant inheritance tax bill.
In many cases, this tax must be paid before assets can be transferred. This can force the surviving partner to use savings, borrow funds or even sell the family home to meet the liability.
Had the couple been married or in a civil partnership, no inheritance tax would have been payable on the first death.
Upcoming Changes That Could Worsen the Position
Inheritance tax rules are subject to change, and future reforms may increase the exposure faced by unmarried couples.
For example, proposed changes affecting pensions and death-in-service benefits could result in more assets falling within the scope of inheritance tax, increasing the overall tax payable on death.
This makes forward planning particularly important for unmarried couples who rely on pension wealth as part of their financial security.
What Can Unmarried Couples Do to Reduce Inheritance Tax?
There is no single solution that works for everyone. However, options that may form part of an inheritance tax planning strategy include:
- Making properly structured Wills
- Reviewing property ownership arrangements
- Lifetime gifting, where appropriate
- Using trusts in suitable circumstances
- Considering marriage or civil partnership, where consistent with personal circumstances
Each option has legal and tax implications and should be considered carefully.
Why Specialist Inheritance Tax Advice Matters
Inheritance tax planning for unmarried couples is complex and highly fact-specific. Decisions made without advice can have unintended consequences, including increased tax exposure or loss of control over assets.
Specialist inheritance tax planning advice can help unmarried couples understand their position, identify risks and explore lawful ways to reduce inheritance tax while protecting each other and future beneficiaries.
If you are concerned about inheritance tax as an unmarried couple, our Inheritance Tax Planning Solicitors can advise on your options as part of a wider estate planning strategy.
Please note that we are unable to offer free legal advice. Our client services team are here to take your case details and explain any costs involved
If you would like to speak to our expert legal team about this, or any related subject then please contact our team by phone on 0207 936 6329, Email or by completing our Quick Contact Form below.
Please note that we are unable to offer free legal advice. Our client services team are here to take your case details and explain any costs involved