Irwin Mitchell Private Wealth | Clarity | Cohabitation v Marriage: what the differences can mean for you

Deciding whether or not to get married is an extremely personal choice, and to some couples might be their least-preferred option. The concept of cohabiting presents many benefits: thousands of pounds saved from not having a wedding and a stress-free split if a couple decides to part ways. However, there is no denying that the state is in favour of marriage, and there may be more benefits to getting married the older that you get.

The Office for National Statistics (ONS) released some survey results in May detailing the rise in couples who are cohabiting. The survey revealed that the number of couples who were aged 65+ and cohabiting had tripled to just over 300,000 from 1992. Further research by the insurer Royal London found that these unmarried couples aged 65 and above do not intend to marry in later life. These statistics show a changing preference amongst older couples towards the ease of remaining unmarried and living together without fuss, but such situations mean that couples are missing out on valuable tax breaks.

When it comes to the tax implications of marriage versus cohabiting, marriage is the clear winner. Married partners receive inheritance tax breaks which cohabitating couples are not entitled to: spouses can transfer wealth to their partner without any inheritance tax, and they can transfer any remaining inheritance tax thresholds to their spouse. Cohabitating couples do not have either of these breaks.

The new extra inheritance tax allowance, linked to the value of the home, is not available to the survivor, when one of an unmarried couple dies. Nor are the children of an unmarried partner within the definition of “stepchildren” who can benefit from the new allowance.

Married couples can also transfer assets from one to the other, or share them, without capital gains tax, allowing them to make the maximum use of their annual allowances and lower rates of tax when those assets are sold. This is a break not given to unmarried couples.

There’s also the income tax breaks available to married couples and not to cohabiting partners. The Marriage Allowance allows couples to transfer £1,150 of their personal tax allowance to their spouse or civil partner if they earn more. Again, cohabiting couples do not receive this tax break. This example only applies to a small group, but is demonstrative of how cohabiting couples are penalised by the state and the law for not being married.

For older couples who are not married but are living together, there is the risk of dying intestate or having not updated their will to include the partner they lived with. This can mean that if one partner dies and is separated but not divorced from a former spouse of theirs, any assets and wealth will pass on to their spouse, or commonly their children, rather than the partner they live with if no provisions are made in a will.

Gavin Faber, a Partner in the Will, Trust and Estate Disputes team, said:

“Without any provision, cohabiting partners can be left in financial peril, and in the worst cases, destitute. Their only remedy may be to bring court proceedings for financial provision against their partner’s estate at a time when they are emotionally fragile having lost a loved one. This is not only stressful and upsetting, but can prove costly and lead to a lengthy period of financial uncertainty.

Moreover, any claim brought by a cohabiting partner against their partner’s estate is limited to meeting their maintenance needs which can mean little more than sufficient to meet their day to day living expenses.

A spouse on the other hand may well inherit their partner’s estate automatically under intestacy, and even if they do not, they will be afforded more in a claim for financial provision against their partner’s estate. Such claims are not limited to meeting their maintenance needs.

There is also a great deal of uncertainty in valuing a claim, as was the position with our client Joy Williams (Martin v Williams [2017] EWHC 491 (Ch)). Although Joy was ultimately successful, the Court of Appeal Judge took an entirely different view as to what Joy should receive from the trial Judge. The claims are inherently risky as the Judge has a very wide degree of discretion when making an award.”

Anthony Nixon, a Partner in the Tax, Trusts and Estates team, added:

“It is clear that the bias towards married couples over those who are cohabiting is outdated and does not reflect the reality of modern society. Increasingly, couples of all ages are choosing cohabitation but especially the older cohort; the research undertaken by the ONS and Royal London confirming this is particularly interesting, as older couples may sadly lose their partner and see no rights to their partner’s estate.

“The law should be updated to reflect modern attitudes so that cohabiting couples are not at such a great disadvantage. The current message that both the law and the state send out is that marriage is the only way to be legally recognised as partners, which couples may not find suitable to their lifestyles.

“The tax breaks available to married couples should also be available for cohabiting couples, which will then make cohabiting a far more attractive and equal option for couples.”

Published: 15 August 2017

A moment of clarity

August 2017

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Cohabitation v Marriage: what the differences can mean for you

A moment of clarity

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