To marry, or not to marry; that is the question

It is widely believed that being married (or registered civil partners) is a far superior position to be in vis a vis tax, inheritance, pensions, other rights and so on. Regardless of how long you have lived together or how many children you have together, even in this day and age, unmarried couples still remain unrecognised in law. So what are the main issues?

Well, the first is with regards to inheritance tax. As a married (or civil partnership) couple, you get ‘spousal exemption’. What that means is that a) you are able to carry over any unused IHT allowance to the surviving spouse, effectively doubling their IHT allowance, and b) any inheritance tax liability is paid on first death, rather than second death.

Let me give an example. A & B are not married, but live together. They have 2 children. Their joint estate is £1.5m. A dies. As they are not married, A has a single person’s IHT allowance of £500,000. Their share of the estate is £750,000 which means they are £250k above the threshold. B must now pay a tax bill, on A’s death of £250,000 x 40% = £100,000. So straight away B has a tax liability of £100k that they will need to pay. B then inherits A’s estate, less the tax paid, so B is now worth £1.5m – £100,000 = £1.4m. When B dies, they also have an allowance of £500k, so £1.4m – £500k = £900k. 40% of £900k is £360,000 payable on second death. So, the total tax bill is £100,000 on first death, and then another £360,000 on second making a total of £460,000 or 30.7% of the total estate.

Let’s contrast that with a married couple. Same scenario. A dies. Because they are married/civil partners there is spousal exemption, so NO IHT is payable on first death. B then dies. They are able to add their spouse’s IHT allowance to their own, giving them £1,000,000. £1.5m – £1m is £500,000. 40% of £500,000 is £200,000. So by being married, not only does the survivor not need to pay any inheritance tax on first death, but the overall tax bill is £200,000 (13.3%). Less than half!

So it is a double whammy: a much higher tax bill overall, but, perhaps more worryingly, is the prospect of leaving the surviving partner with an IMMEDIATE IHT bill to settle.

Let us now look at the second issue, and that is a situation where a partner dies ‘intestate’, i.e. without a Will. C & D live together. They have one child. They live in a rented house, and C has cash assets in their sole name. Under the Laws of Intestacy, their unmarried partner IS NOT ENTITLED to inherit a penny. Instead, the sole child inherits C’s full estate, at 18, whether they are mature and sensible enough, or not. D effectively is also now penniless.

At least if C & D were married, under the intestacy rules, D would be entitled to the first £322,000 of the estate, plus 50% of the balance. That is a long way from getting nothing.

If you are also unmarried and want advice on the best way forward, do feel free to contact us for a no obligation chat.