Millions of unmarried couples across the UK who live together, buy homes and raise children without marrying are exposed to serious financial risks, from being forced out of their home to facing inheritance tax bills running into millions of pounds, financial and legal experts have warned.
Almost 6.5 million people in the UK cohabit, and 51 per cent of children are now born outside marriage, according to official data. Many wrongly believe that living together for a long time creates a "common-law marriage" carrying the same rights as being wed, but no such legal status exists.
Comedian Ricky Gervais highlighted the issue last week when he revealed that he and his partner of 44 years, Jane Fallon, would marry, specifically to avoid a large inheritance tax bill.
The Government has promised to reform the law on cohabitation in England and Wales, and until nine days ago was consulting the public and legal experts on the changes. But experts say none of the proposed reforms will be enough to stop wealth falling into the wrong hands, or the taxman's pocket.
Risks for unmarried couples
Couples who cohabit are running risks that could "seriously damage their finances," said Sarah Coles, head of personal finance at investment platform AJ Bell. If a couple splits up or one partner dies, unmarried partners have no automatic legal, financial or inheritance rights, no matter how long they have been together.
In cases seen by The Mail on Sunday, mothers have been forced out of their homes, older surviving partners have been left penniless, and family inheritances have been snatched away. Rights over property depend entirely on who owns it and how, and many unmarried partners walk away with nothing.
Unmarried partners also cannot claim against an ex-partner's pension if they split up. Spouses, by contrast, have three options when dividing pensions: sharing them on a clean-break basis, earmarking some income to be paid after retirement, or offsetting their value against other assets.
"If unmarried partners die without a will, assets are split according to intestacy rules," Coles said. "These give nothing to unmarried partners at all." If a home is in one partner's name alone, the new legal owner after their death, such as their child, can evict the surviving partner from the family home.
Cohabitees do have the legal right to claim against a partner's estate after living together for more than two years, but this can be protracted, stressful and expensive, especially where the deceased has blood relatives who could otherwise inherit. Unwed couples also have no right to spousal maintenance and fewer claims to bereavement benefits. In Scotland, unmarried couples can already make a claim after a split to address a financial imbalance.
Government's new protections
In June, the Government announced plans to update cohabitation law, saying it "hasn't kept pace with the realities of modern families." Ministers promised a safety net for couples who split up or for those who survive a partner. The reforms would apply to couples who have lived together for at least three years, or who live together and have children.
Under the proposals, cohabiting couples would get the same intestacy rights as spouses when a partner dies without a will. On separation, partners could gain a claim on the other's assets, including a share in the sale of a home owned solely by the other person.
Cohabiting couples would still have different rights from married couples, "helping to preserve the sanctity of marriage." Unlike divorce, where assets tend to be split equally, it would initially be assumed each person keeps what they legally own. Courts would only intervene to meet an individual's needs, such as a mother who gave up her career to raise children.
Inheritance tax dangers
Even with greater rights, unmarried couples still face one glaring danger: a hefty inheritance tax bill. Spouses can pass wealth to each other on death completely free of death duties, and can pass on any unused allowances between them.
Everyone gets a £325,000 tax-free allowance on their estate, known as the nil-rate band, plus an extra £175,000 for those passing a home to a direct descendant such as a child or grandchild. Anything above this is taxed at 40 per cent, meaning a widow could in theory pass on £1 million tax free.
Unmarried couples get none of these extra allowances, and there are no plans to change this. For Gervais, it means that if he left his £141 million fortune to Fallon without marrying her, she would face an inheritance tax bill of £56.3 million. Once married, she will not pay a penny.
The tax trap catches ordinary couples too. Take a couple who have cohabited for 20 years, referred to as Andrew and Sarah. If Andrew died in June 2027 and left half of a house worth £350,000 to Sarah, along with his £500,000 pension, she would have to pay £140,000 in tax. Unused pension pots are currently exempt from inheritance tax but will be drawn into it from April.
If Sarah then died five years later, with the house worth £375,000, £250,000 left of Andrew's pension and her own pension worth £400,000, and she left it all to a niece, £280,000 in inheritance tax would be payable, according to calculations by insurer Royal London. In total, £420,000 would be paid in tax on the couple's assets, compared with just £150,000 had they been married.
Money in the wrong hands
The reforms also carry new risks. If a parent gives a grown-up child money towards a first home, part of that gift could go to an ex-partner if the couple later splits, even without marriage. The changes could also leave children with very little.
"A couple may have children from a former relationship and they want to protect their assets in the event the relationship came to an end," Coles said. "These proposed changes may mean they don't have the protection they expect."
Under current intestacy law, a partner inherits an entire estate worth £322,000 or less if there is no will; above that, children inherit a portion. After the reforms were announced, many people took to Reddit to say unmarried couples probably do not want the legal arrangements marriage affords them.
"The danger in trying to fix the 'common-law marriage' myth is we inadvertently create something that feels very much like marriage by default," said Julian Hawkhead, senior partner at Stowe Family Law.
How to protect your wealth
- Write a will. "Not having a will means other people have the right to inherit," said Clare Moffat of Royal London. "That could mean money or a house going to a cousin of the person who died rather than the person they live with."
- Make a cohabitation agreement. These legally binding documents set out who owns what and how property is divided on a split. Both partners should get legal advice, and courts can disregard an agreement judged unfair. Divorce lawyer Vanessa Lloyd Platt suggests couples should at least write their intent on paper and sign it in front of a witness.
- Nominate pension beneficiaries. An "expression of wishes" form can guide pension trustees. Partners of public-sector pension holders may claim a survivor's pension if they lived together for two years and were financially interdependent.
- Minimise your inheritance tax bill. Gifts made more than seven years before death fall outside the estate, and £3,000 a year can be given away tax free. The "gifts out of normal expenditure" allowance lets someone give away unlimited sums if they are regular and made from surplus income.
- Get married. Joe Cobb, head of private wealth at law firm JMW, warned: "Being married comes with other responsibilities and consequences, like potentially getting divorced. A divorce tax at 50 per cent, the amount you'd give up in a split, is worse than inheritance tax at 40 per cent."
- Opt out of the reforms. If both partners agree, they may be able to opt out of the new rules, an option that could suit younger couples not yet ready to link their finances. It is not yet known how this will work in practice.
