The hidden Inheritance Tax risk for unmarried couples and what it means for their children

Cohabiting couples are now the fastest‑growing family type in the UK. Yet many remain unaware that the law has not kept pace with modern relationships, particularly in relation to inheritance tax (IHT).

For unmarried couples, the financial consequences on death can be significant and, in some cases, devastating for surviving partners and children.

At hpjv Solicitors, we are increasingly advising families who are surprised to learn how exposed they are.

There Is No Such Thing as a “Common Law Spouse”

Despite popular belief, the concept of a “common law husband or wife” does not exist under UK inheritance law. Regardless of how long a couple has lived together, an unmarried partner:

• Does not automatically inherit under intestacy rules
• Does not benefit from the spousal inheritance tax exemption
• May face an inheritance tax bill that a married couple would not

This distinction becomes critical on death.

The Inheritance Tax Difference

Under current rules, married couples and civil partners can pass assets to each other free from inheritance tax due to the spouse exemption. They can also transfer unused nil‑rate band allowances to the surviving spouse.

Unmarried couples do not benefit from these protections.

This means:

• If one partner dies leaving assets (including their share of the family home) to the other, inheritance tax at 40% may apply above the available nil‑rate band.
• The surviving partner could face a substantial tax bill at a time of emotional distress.
• Ultimately, this may reduce what is passed down to children.

For families with property, business interests or life policies, the exposure can be significant.

The Impact on Children

Children may be affected in several ways:

1. Immediate Financial Pressure

If inheritance tax is payable, it must generally be settled before probate is granted. This can force families to:

• Sell property
• Liquidate investments
• Borrow funds

2. Risk of Unintended Disinheritance

Without a valid Will, assets do not automatically pass to a cohabiting partner. They may instead pass directly to children under intestacy rules, potentially creating financial instability for the surviving parent.

3. Loss of Nil‑Rate Band Transfer

Unlike married couples, unmarried couples cannot transfer unused allowances. This may significantly increase the eventual inheritance tax liability when the surviving partner later dies.

How Can This Be Avoided?

While the law currently favours married couples and civil partners, careful planning can mitigate risk.

1. Making a Professionally Drafted Will

This is essential. A properly structured Will can:

• Ensure assets pass as intended
• Provide financial security for a surviving partner
• Protect children’s long‑term inheritance
• Incorporate trusts where appropriate

Therefore, to ensure you partner does inherit from your estate, we would advise you to make a Will, as a Will lets you leave clear instructions about how your estate is to be distributed and by whom. Without a Will your estate is subject to the intestacy rules and may not go to the people you would have chosen.  

Here at hpjv Solicitors our solution is a service which makes writing a Will simple, affordable, and easy. All we need is a few minutes of your time to discuss your estate and your wishes.

2. Exploring Trust Structures

In some cases, discretionary or life‑interest trust Wills can help balance provision for a surviving partner while protecting children’s inheritance.

The advantage of this type of Trust is that the property can be protected for your loved ones, as the surviving owner can have the right to live in the property for their lifetime whilst safeguarding it for your intended beneficiaries when the surviving owner has died.

Whilst considering this option it is also important that the ownership of your property is reviewed as how property is held (joint tenants or tenants in common) can significantly impact estate‑planning options.

3. Considering Life Insurance Written in Trust

A life policy can provide liquidity to meet any inheritance tax liability. When written in trust, the proceeds sit outside the estate and can be accessed quickly.

4. Considering Marriage or Civil Partnership

While a personal decision, from a purely tax perspective marriage or civil partnership provides substantial inheritance tax advantages under current law.

Best Practice Advice

At hpjv Solicitors, our best practice advice for unmarried couples is clear:

1. Do not rely on assumptions about “common law” rights.
2. Put a professionally drafted Will in place and keep it updated. By making this important decision to you will gain personal peace of mind and prevent your loved ones from suffering any financial hardship and distress in the future.
3. Undertake a full estate‑planning review, particularly where children, property or business assets are involved.
4. Plan proactively rather than reactively.

Every family structure is different. The right solution depends on asset values, ownership arrangements, family dynamics and long‑term intentions. Proactive advice can make all the difference. If you would like to review your estate‑planning arrangements, our Family Law and Private Client Departments are on hand to help.