Government’s Inheritance Tax Plans ‘A Missed Opportunity To Bring Law Into 21st Century’

Legal Experts Call For Unmarried Couples To Be Given Same Rights

22.07.2015

Lawyers specialising in will and estate dispute issues have urged the Government to rethink proposed changes to inheritance tax in order to prevent it becoming “a missed opportunity” to acknowledge and support the growing number of unmarried couples in the UK.

Irwin Mitchell’s Will, Trust and Estate Disputes team has warned the Family Home Allowance, which was introduced in the Summer Budget and increases the amount of an estate which can be left to family tax-free, did not recognise the rising number of people choosing to cohabit.

According to the Office for National Statistics, unmarried couples accounted for 17 per cent of all households in the UK in 2011 with this trend continuing to rise.

Specialist will dispute lawyers at Irwin Mitchell are now calling on the Government to consider changes to its plans to ensure that cohabiting couples do not miss out as a result of the changes.

Expert Opinion
“The Family Home Allowance changes are a positive step forward which will benefit a great number of families, but ultimately it is another missed opportunity for the Government to bring laws into the 21st century and acknowledge that more and more people are choosing to live together unmarried.

“We unfortunately see many cases where long term cohabitees are not properly provided for under a will, due to a failure by their loved ones to update their will or from a misunderstanding of the rules of intestacy.

“These people are often able to seek assistance from the Court under the Inheritance (Provision for Family and Dependants) Act 1975, which often allows them to remain in their home or find a suitable alternative. However, these claims could be set to become more difficult, as the changes may mean a substantial tax bill needs to be paid.

“We hope that the government sees fit to review the current system for the Family Home Allowance and extends it to apply to cohabitees of two or more years.”
Paula Myers, Partner

The Family Home Allowance is expected to enable people to leave an additional £175,000 tax free to their direct descendants – ie. children and grandchildren. A married couple will have the benefit of a transferable allowance, meaning that the surviving spouse can pass on an additional £350,000.

However, Paula added that the decision not to extend this allowance to long-term partners – even if they are the other parent of children – could have consequences.

Expert Opinion
“In limiting the persons who can benefit from this allowance to direct descendants, this effectively creates as system where it is more tax efficient to leave your home to your children – who may have moved out and own a home of their own – than to your unmarried partner of 20 years who still lives in the property.

“This creates a risk that people making their will may look to utilise the allowance by leaving their home to their children on the promise that they will look after the surviving cohabitee, without any real way of guaranteeing this. If this occurs, an already growing area of disputes is likely to increase further.

“By way of an example, take an estate worth £500,000 comprising mostly of a house. If the Deceased leaves the house to their long-term, unmarried partner, the first £325,000 will pass to them tax free, leaving them to pay tax on the remaining £175,000. However if this house is left to their children, there will be no tax to pay at all.

“The Family Home Allowance is clearly designed with the best of intentions, but we would urge the Government to modernise its plans and recognise the huge number of cohabiting couples who could face issues as a result.”
Paula Myers, Partner