It’s a common misconception that people who live together will benefit from the same tax treatment as those who are married or in a Civil Partnership, so-called common law partners.
This is most definitely not the case when it comes to tax and your relationship status can dramatically affect your entitlements.
Unmarried partners will not automatically inherit anything if there is no formal will in place.
Instead, the deceased partner's estate would pass either to their children entirely, or if there were no children then the deceased’s parents or their siblings would inherit the entire estate, followed by more distant relatives and eventually the Crown.
Rather a sobering thought when I think my estate could pass to a distant cousin I rarely see, leaving my partner with nothing.
Your home is, for most people, their largest asset, and whilst owning the property in joint names (rather than as tenants in common) with your common law partner can ensure the property passes to them, there is no spouse exemption available.
This would mean that if the deceased’s share of the family home is worth in excess of £325,000, there would be an IHT liability on the family home passing to the surviving partner.
Having up to date wills in place can ensure your loved ones are looked after, but marriage and divorce can also affect existing wills.
Getting married will revoke any existing will in place (unless the will was made in contemplation of the marriage) leaving you at the mercy of the intestacy laws.
Whilst divorce doesn’t revoke your will, it does have the effect that your (now ex) spouse/civil partner is treated as deceased for the purposes of your will, meaning it could have a very different effect than originally intended.
Whether you are married / in a civil partnership or co-habiting it's important to ensure provisions are in place for your nearest and dearest, and on that note I am going to get a will in place (or make an effort to see my cousin more).
Bishop Fleming’s Estate and Probate team are well equipped to review your personal circumstances, provide you with an estimate of your exposure to inheritance tax and provide advice on mitigating that exposure.
You can find more information on our Trusts and Probate Services here.
If you would like to discuss how taxation of the family can impact your decisions, please contact a member of our Trusts and Probate team who will be pleased to talk to you.