Inheritance tax warning as ‘common myth’ could leave unmarried couples facing huge bill | Personal Finance | Finance

Britons who are not married or in a civil partnership have no status under inheritance law meaning they could lose an asset they assumed they would naturally inherit if their partner died.

Experts at Hanne & Co Solicitors explained that inheritance tax provisions favour spouses/civil partners rather than cohabitees.

On their website, it states that the notion of common law marriage “is a myth” in England and Wales as any gift to a spouse/civil partner is exempt from inheritance tax, whereas if someone is unmarried or not in a civil partnership and leaves the estate to a partner, they could face huge inheritance tax bills.

Michael Culver, chairman at Solicitors for the Elderly (SFE) said: “A common myth is if couples are in a relationship for decades they may benefit from the same exemptions as those who are spouses – which is not true.

“Unmarried couples could have lived together for 40 years, had children together and properties, but if one dies then there are implications.

“If a partner dies, all the other person in the couple will receive is £325,000 tax-free.”

Each person has a ‘Nil Rate Band’ of £325,000, which is part of their estate and passes entirely free of inheritance tax.

In addition, everyone is entitled to a ‘Residential Nil Rate Band’ of £175,000 which is available specifically when a person leaves a property that at some point has been their main home to their child or grandchild.

Married couples or those in a civil partnership can use any part of their Nil Rate Band and Residential Nil Rate Band that is unused.

This can be transferred to the estate of the surviving spouse/civil partner, meaning up to £1,000,000 can pass inheritance tax-free between the two of their estates.

However, for partners who are not married or in a civil partnership, it is not possible to transfer the Nil Rate Band or Residential Nil Rate Band and any unused portion is lost.

Mr Culver continued: “Similarly, the rules around the residence nil-rate band can also be confusing and feel somewhat unfair.

“This is because people who do not have children cannot benefit from the £1million allowance.

“The devil really is in the detail with this one, and it’s really important to be aware of the rules.”

On its website, Hanne & Co explained “the simplest solution” is to ensure that cohabiting couples both write Wills.

This will provide them with peace of mind knowing that when either of them passes away, the other will be adequately provided for and entitled to receive some or all of the other’s estate.

For more information, people are encouraged to speak to a financial advisor about the best ways to reduce an inheritance tax bill.