Unmarried and inheritance tax: why your partner could face a 40% bill a married couple would never see

Many cohabiting couples in the UK assume that years of shared life carry some legal weight when one of them dies. They do not. The day a partner dies, the survivor can find themselves in a tax position that a married couple would never see.

This is the most under-discussed inheritance tax issue we come across in practice, and it tends to surface only when it is too late to fix it.

The common-law marriage myth

Common-law marriage is not a legal concept in England and Wales, and has not been since 1753. Living together, raising children together, or sharing a home for decades creates no automatic legal status between you. Surveys regularly find that around half of cohabiting couples still believe otherwise.

For most of life, the distinction may not matter much. It matters acutely when one partner dies, because the inheritance tax system gives married couples and civil partners reliefs that unmarried partners simply cannot use.

No spouse exemption

The most important relief is the spouse exemption. Anything you leave to a spouse or civil partner on death passes free of inheritance tax, regardless of value. An estate of any size left entirely to a spouse generates no IHT.

For unmarried partners, that exemption does not exist. Assets you leave to your partner count towards your estate for IHT in the normal way. Above the £325,000 nil-rate band, the rate is 40%.

No transferable nil-rate band

There is a second hidden cost that families often miss until they hit it. When the first spouse in a married couple dies and leaves everything to the survivor, any unused nil-rate band can later be transferred to the survivor's estate.

This is what allows a married couple's combined inheritance tax threshold to reach up to £1 million: two nil-rate bands of £325,000 plus two residence nil-rate bands of £175,000, on a qualifying family home left to direct descendants. Both bands are frozen at these figures until April 2031.

Unmarried couples have only their own thresholds. There is no transfer between them, no doubling up, no sheltering of the first estate against the second.

A worked example

Anna and Ben have been together for 25 years and own their family home in joint names worth £700,000. They each have savings and investments of £100,000. Their combined estate is £900,000. They have two adult children together.

If Anna and Ben were married, the first death would pass everything to the survivor free of inheritance tax under the spouse exemption. On the second death, the family would have both nil-rate bands (£650,000) and both residence nil-rate bands (£350,000), a combined threshold of £1 million. No inheritance tax would be due on either death.

Anna and Ben are not married. When Anna dies first and leaves her half of the home and her £100,000 to Ben, her estate of £450,000 is covered by her own £325,000 nil-rate band and £175,000 residence allowance. No IHT is due on her death.

When Ben later dies, his estate is everything: the house at £700,000 plus the combined savings of £200,000, a total of £900,000. He has only his own threshold of £500,000. The remaining £400,000 is taxed at 40%, generating an inheritance tax bill of £160,000.

That is £160,000 a married couple would not have paid on the same assets, leaving the same children.

The forced home sale

Inheritance tax has to be paid before the estate can be fully distributed. The deadline is broadly six months from the end of the month of death, often before probate is granted and frequently before the family home can be marketed.

For families where most of the estate is held in the home, finding a six-figure cash sum that quickly is rarely possible. The result is that bereaved adult children, who are usually the beneficiaries, sell the family home under time pressure to clear the bill. This is exactly the scenario most families assume inheritance tax planning is supposed to avoid.

What unmarried couples can do

This is not a problem with a single clean fix. But there are several steps that may help, and the right combination depends on your circumstances.

A well-drafted will is the starting point. Without one, the intestacy rules give a surviving cohabiting partner nothing automatically, regardless of how long you have lived together. The partner may have a claim under the Inheritance (Provision for Family and Dependants) Act 1975, but that is a court process, not a right.

• Lifetime gifting can reduce the size of your estate. Gifts you survive by seven years fall outside it; smaller annual allowances are immediately exempt.
• Life insurance written in trust is widely used to provide a tax-free lump sum on death, so the bill can be paid without selling the home.
• Some couples formalise their relationship, by marriage or civil partnership, specifically because the tax position is so different.
• Trust planning may help in the right circumstances, though transfers into trust have their own IHT consequences and need specialist advice.
• How the property is owned matters. Property held as joint tenants passes by survivorship; property held as tenants in common passes under the will. Either may help or hinder the wider plan.

Why this catches people out

Most families never expect to see a six-figure inheritance tax bill. They look at the home, see house prices that feel ordinary to them, and assume the nil-rate band absorbs the estate. For a married couple, the combined £1 million threshold often does. For an unmarried couple, the threshold is half of that, the spouse exemption is missing, and the bill arrives on the second death rather than being deferred indefinitely.

This gap is not new, and it is not particularly hidden in the rules. But because the cost lands on the survivor at the worst possible time, it is rarely fixable once you get there. The honest answer is that this is one of the few areas of inheritance tax where the right time to plan is genuinely now, not later.

Simply Estate is an estate planning firm. Our team can map your situation against the current inheritance tax thresholds and walk you through the options that fit unmarried couples specifically. Visit our inheritance tax page to book a free, no-obligation review.