Q: My partner and I are in our 50s, we own a property outright as tenants in common. We do not intend to get married as we have both been married (and divorced) before. I am worried that if my partner were to die, his estranged adult children would inherit his estate, leaving me in a difficult position financially in respect of the property. I am also concerned about the issue of having to pay Inheritance Tax on my partner’s estate.
A: Yours is not an unusual situation; many middle-aged couples have chosen to live together without being married.
It is understandable that you are concerned about what would happen to you should your partner die without having left a Will. When someone dies without a Will, then the estate is divided in line with the Rules of Intestacy and, unfortunately, intestacy law still does not recognise couples who are unmarried or not in a civil partnership. This would mean that either your partner’s children would inherit his half of the house you live in and may insist you buy out their share, or the house would have to be sold.
However, under the Inheritance (Provision for Family and Dependants) Act 1975, an unmarried partner can make a claim for financial provision providing they have been cohabitating with the deceased for a minimum of at least two consecutive years prior to the deceased’s death.
When a property is jointly owned as tenants in common, each owner’s half is owned independently and can be left to a third party in a Will or pass to the next direct relative under the Rules of Inheritance. The other partner does not automatically inherit the share when their partner dies. More information can be found here – Joint Tenants, dealing with probate.
There is a simple solution, however; and that is for you and your partner to have Wills drawn up by a solicitor. Your partner could choose either to leave his share of the house to you in its entirety or to give you a life interest in the house. A life interest would enable you to remain in the house until you die or choose to leave; when this happens, his children would then be able to inherit their father’s share of the property.
It is worth bearing in mind that unmarried couples are not afforded the same Inheritance Tax benefits as couples who are married or in a civil partnership. Unmarried couples are unable to benefit from the IHT spouse exemption or transfer any unused residence nil-rate band to each other. This means that if their estate is worth more than £325,000, the excess above £325,000 will be liable for a 40% Inheritance Tax, even if the entire estate is left to the other partner.
Compare this to a married couple or civil partnership where on the first death, the estate passes to the surviving spouse, inheritance tax-free, and their nil-rate band remains unused. On the second death, this unused nil-rate band can be combined with the nil-rate band of the second spouse, increasing the reliefs available to the second estate of up to £650,000 for tax year 2017/2018. Often this means that the combined estate on the second death does not pay any Inheritance Tax. In addition, if someone leaves their entire estate to their spouse or civil partner, then there will usually be no inheritance tax to pay, as assets can be passed to spouses free of inheritance tax. The late Sir Ken Dodd married his long-term partner, Anne Jones, just two days before his death. The marriage made sure Ms Jones would be free from the burden of paying almost £2,000,000 in Inheritance Tax on Sir Ken’s estate, which she inherited. The late Sir Bruce Forsyth also left his entire estate to his wife, meaning his estate would not be liable to pay any inheritance tax.
While I appreciate that you may not intend to get married, being married or in a civil partnership is really one of the best ways to ensure that you are able to maximise the Inheritance Tax benefits, and, in the event of not making a Will, that the surviving spouse will inherit a good portion of the estate.
It is highly advisable that unmarried couples receive expert Tax Planning advice when considering a Will.
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