What happens if your partner dies and you aren't married?

News  |   23 November 2023

Written by
Kamran Chughtai, Solicitor

The decision to build a life together without the formalities of marriage or civil partnership is increasingly common. Whilst this decision is a personal one, the legal implications can be severe.

Many couples may not realise that without a Will the distribution of their assets is governed by the intestacy rules. This can result in the surviving partner not being legally recognised as a rightful beneficiary, potentially leading to unintended consequences and disputes. Writing a Will allows an individual to set out their wishes and direct their assets to whomever they wish to inherit – including surviving partners.

A carefully drafted Will can also help to maximise the use of Inheritance Tax Allowances. In the UK, each person has a Nil Rate Band which is the amount up to which an estate pays no Inheritance Tax – this currently stands at £325,000. Transfers between spouses or civil partners and exempt from Inheritance Tax, and any unused Nil Rate Band can be transferred to a surviving spouse or civil partner – meaning a potential combined tax-free allowance of £650,000.

This does not apply to unmarried couples, and as a result on first death Inheritance Tax is due on the value of an estate over £325,000 including any inheritance left to the surviving partner. Furthermore, any unused Nil Rate Band on the first death is not transferable to the surviving partner. The consequence of this is that Inheritance Tax will also become potentially payable on the value of the surviving partner’s estate over £325,000.

There is a solution to mitigate this problem, in whole or in part, with carefully drafted Wills to incorporate Nil Rate Band Discretionary Trusts. On the first death, an amount equal to the Nil Rate Band passes to the Trust and would be separate from the surviving spouse’s estate. The surviving spouse could, however, still benefit from the assets in the Trust. The advantages of a Will incorporating a Nil Rate Band Discretionary Trust for unmarried couples can be seen using a simple example:

John and Jane are an unmarried couple owning £325,000 each. They have Wills which simply leave everything to each other on the first death, and then to their children on the second death.

On John’s death, no Inheritance Tax would be payable as his estate is equal to the Nil Rate Band.

On Jane’s death however, her estate will only benefit from her own Nil Rate Band. This would mean that £325,000 out of her £650,000 estate would be taxable at 40% - resulting in an Inheritance Tax bill of £130,000.

If John and Jane had incorporated Nil Rate Band Discretionary Trusts into their Wills, on John’s death no Inheritance Tax would be payable as his estate is equal to the Nil-Rate Band, and all of his assets would pass to the Trust. The assets would be separate from Jane’s estate, and she would still be able to benefit from them during her lifetime. On Jane’s death, she will only have £325,000 worth of assets in her estate, and therefore will pay no Inheritance Tax. Assets would then be free to pass to John and Jane’s children.

By using a carefully drafted Will incorporating the right type of Trust, John and Jane were able to save £130,000 in Inheritance Tax.

It's therefore extremely important that proper consideration is given to the way unmarried couples draft their Wills. If you wish to speak to one of our solicitors please call our team on 0208 290 0440.

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