According to the Office for National Statistics report: Families and Households: 2017, one in five couples living together in 2017 were not married or in a civil partnership. In total, around 3.3 million couples cohabit, more than double the 1.5 million number from 10 years ago. Of these couples, around 40 per cent have dependent children. It is also estimated that as many as 60 per cent of UK adults do not have a will, including a third of over 55s (although official statistics are not available to confirm this).
For many unmarried couples the response to this may well be ‘so what?’ There is a common myth that a couple living together can be treated as married – ‘common law spouses’ – once they have been together for a reasonable period. In fact, co-habiting couples currently have few if any legal rights over each other’s assets, and this can create major problems on separation or death.
Cohabitation Rights Bill
The Government is in the process of considering a Cohabitation Rights Bill that will address some practical issues, but the Bill will not provide any tax reliefs or protections. This means that on the death of one partner, the other will still not be able to inherit assets free from inheritance tax (IHT), and will not be able to take over the deceased’s ‘nil rate’ IHT band. Worse, if the deceased dies without a will, the survivor may have no rights to receive anything at all.
Many couples have complex family arrangements, including children from previous relationships, financially dependent relatives and ex-spouses. In many cases, currently cohabiting couples will also have no desire to marry.
Where this is the case, it is very important to think ahead. You may be young and in excellent health, but that will not help if you are hit by the proverbial bus, and in the absence of lifetime planning, your death could be a financial as well as an emotional disaster for those closest to you.
An effective will
There are some simple steps that all cohabiting couples should consider. The first, and most important, is to make sure that you have an up-to-date will. In this regard, recent court cases have underlined the importance of making sure that your will is properly drafted: imprecise or sloppy wording can completely undermine your intentions.
It is also worth considering lasting powers of attorney (LPAs), which give control over financial and health decisions in the event you are incapacitated. Otherwise, there is a very real risk that your partner could be shut out of decision making altogether if you are no longer able to make decisions for yourself.
Tax effective gifts
Finally, think about making gifts during your lifetime. For IHT, gifts made more than three years before death are subject to reduced tax rates when you die, and gifts made more than seven years before death are not taxed at all. Passing assets to a lower-earning partner can also save income tax and capital gains tax annually, but you need to be careful not to trigger large chargeable gains on the gift itself.
Nobody likes to think about their own death or permanent incapacity, but if you don’t, the consequences for those you love the most – and yourself – can be catastrophic. Acting early can save a lot of distress, and money, when the inevitable finally happens.