For married couples or those in a civil partnership, inheritance tax laws are relatively straightforward. One partner can leave their entire estate to the other without it being subject to inheritance tax (IHT). However, for unmarried couples, the situation is different, and the rules can seem more complex.
If you are in a long-term relationship but not married or in a civil partnership, have you thought about how inheritance tax may impact your partner after you pass away? Let’s explore how inheritance tax works for unmarried couples and why having a Will is essential.
Before delving into the specific challenges faced by unmarried couples, it’s helpful to understand the rules for married couples or those in a civil partnership. When one partner passes away, the surviving spouse can inherit their entire estate without paying inheritance tax, regardless of its value. In addition, the deceased’s unused tax-free allowance can be transferred to the surviving spouse, effectively doubling their IHT threshold.
This spousal exemption offers peace of mind to married couples, ensuring that they won’t face significant financial burdens following a partner’s death.
Unfortunately, unmarried couples do not benefit from the same exemptions as those who are married or in a civil partnership. In the eyes of the law, unmarried partners are treated as separate individuals, meaning that inheritance tax applies differently. Let’s explore two scenarios that highlight the key differences.
In this situation, one partner dies and has left a valid Will. In the Will, they state that they want their entire estate to go to their surviving partner.
Here’s where the challenge comes in: if the estate exceeds the current inheritance tax threshold of £325,000, the surviving partner will need to pay IHT on the amount over that threshold. For unmarried couples, the surviving partner does not receive the spousal exemption, so they are subject to the standard 40% IHT on any amount above the threshold.
For example, if an unmarried partner leaves an estate worth £500,000, the surviving partner would need to pay IHT on £175,000, which could result in a £70,000 tax bill.
The second scenario is more complicated and far riskier. If an unmarried partner dies without a Will (known as dying intestate), the surviving partner has no automatic right to inherit under the law.
Intestacy rules dictate that the deceased’s estate must be distributed according to a strict legal order, which typically favours blood relatives over cohabiting partners. This means the surviving partner could receive nothing, regardless of how long they’ve been together. The estate would be divided among the deceased’s closest family members, leaving the partner vulnerable and without financial support.
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If you are in a long-term relationship but do not wish to marry or enter a civil partnership, it is critical that you make a Will to ensure your partner inherits your estate. Without a Will, there’s no guarantee that your assets will go to the person you love.
A Will allows you to:
Additionally, you can consider other estate planning tools such as trusts, which may help to reduce the overall tax burden on your estate and ensure that your assets go directly to your partner.
Are you ready to secure your family’s future with a Will? Get in touch with My Family Legacy today for professional, personalised estate planning advice. Call us on 0117 279 5507 or email support@myfamilylegacy.co.uk for a no-obligation consultation.
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