Marriage/civil partnership vs co-habiting: key differences to be aware of

Unmarried couples may co-habit for a number of reasons and at various life stages. As such, they are the fastest growing family type in England and Wales. However, unmarried co-habitees have less legal protection in the event of death or separation and do not benefit from the same tax treatment as their married and civil partner counterparts.

This has attracted the attention of the UK Parliament whose Women and Equalities Committee opened an enquiry in April 2021 titled The Rights of Co-habiting Partners. The Committee is in the process of gathering evidence from people and organisations to consider the issues surrounding co-habitation, how the rights of co-habitees should be strengthened and what legal protections should be put in place. Whilst we are waiting for their report and recommendations, it is important for unmarried co-habitees to understand the current status of their legal rights so that they can plan accordingly.

Below, we set out some of the key considerations from an English legal and UK tax perspective, and the steps that all couples should be taking regardless of whether they are married or in a civil partnership, or unmarried.

Death and succession planning

  • If either party in a couple were to die without a Will whilst not married or in a civil partnership, the survivor would not be automatically entitled to inherit anything under the English intestacy rules. Spouses and civil partners do have rights under the intestacy rules (depending on the values involved and wider family circumstances), but they do not always match what the deceased’s wishes would have been.
  • Regardless of whether there is a Will in place or not, there is also legislation which permits claims to be made against a deceased person’s estate. The requirements to be satisfied in order for such a claim to be successful are stricter for co-habitees than for those who are either married or in a civil partnership. Either way, court proceedings can be expensive and time-consuming, and so should be seen as a last resort.
  • In short, it is not recommended that the intestacy rules or the inheritance claims legislation be relied upon. Instead, whether married or in a civil partnership or not, it is always advisable to put a suitable personalised Will in place.
  • Getting married or forming a civil partnership usually revokes a Will, but if a couple is definitely planning to marry or enter into a civil partnership, and would like their Wills to remain valid afterwards, there is technical wording that can be put in place to achieve this. This would also require bespoke drafting with alternative options to cover the position (particularly from a tax perspective) if they were to die either before or after getting married or forming the civil partnership.

Relationship breakdown

  • Couples who are neither married nor in a civil partnership do not have any particular rights in the event of relationship breakdown. Spouses and civil partners, however, are given certain rights and protections on divorce or dissolution of the civil partnership. Either way, it is often recommended that couples consider co-habitation agreements before moving in together and/or pre- or post-nuptial agreements before getting married or entering into a civil partnership.

Tax considerations

  • Marriage or civil partnership changes how certain tax rules apply to couples during their lifetime. Many of these rules are generally considered to be advantageous, such as the “marriage allowance” for income tax purposes and, in most cases, the ability to transfer assets between spouses/civil partners without triggering inheritance tax, capital gains tax or, where relevant, the additional 3% rate of stamp duty land tax (SDLT). Others, however, are somewhat more limiting, such as the treatment of couples who are married or in a civil partnership for the purposes of capital gains tax “private residence relief” and the additional 3% rate of SDLT (under which they are treated as joint purchasers even if they purchase property separately).
  • Marriage or civil partnership also changes the inheritance tax implications on death. Broadly speaking, in most cases, if a couple is married or in a civil partnership, it is possible to defer the inheritance tax charge until both parties have died so that, as a whole, the estate is only taxed once at 40% before it passes to the couple’s children or other beneficiaries. If a couple is not married or in a civil partnership, however, the first-to-die’s assets would be subject to the charge twice: once on the first death when passing to the survivor, and then again on the second death when passing from the survivor to the couple’s children or other beneficiaries. This can also have cashflow implications, when determining the point at which assets would have to be liquidated in order to meet a tax bill.

Practical matters

  • Whether married or in a civil partnership or not, it is worth reviewing how a couple’s assets are held and, if they are held jointly, careful thought should be given to whether they are held as “joint tenancies” or “tenancies in common”. There are often practical matters to consider, such as ease of access and administration on a day-to-day basis, but the precise ownership arrangements can also have significant longer-term implications for the tax treatment of the assets and how they pass on death.
  • If a couple wants to have the ability to make decisions on each other’s behalf (whether in relation to financial matters, property, their business assets, or healthcare or medical treatments), particularly in the event of loss of capacity, then powers of attorney should be put in place in order to achieve this. In the absence of appropriate powers of attorney, there is no such automatic right, regardless of whether the couple is married or in a civil partnership or co-habiting or not.
  • Finally, given that any change in relationship status or living arrangements could potentially give rise to new tax implications and/or family dynamics and responsibilities, it may also be necessary to review any insurance policies to ensure that they would pay out when needed to the right individual(s).

For further information please call Alison Broadberry or email a team member

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