Inheritance tax warning as couples face shocking IHT bill due to ‘common myth’ | Personal finance | Finance
A new study has shown that 51% of Britons surveyed have the wrong notion of “common-law marriage”, according to Stowe Family Law. That is, couples who live together after a certain number of years have the same legal rights as a married couple.
But sadly, that’s not true, and with more couples cohabiting than ever before, it could create problems down the road.
The government recently rejected calls to reform cohabitation laws, according to a report by the Women and Equalities Committee.
The committee had called for better protection for cohabiting couples and their children against financial hardship in the event of separation.
However, the government has also addressed another issue where cohabiting couples could break free: inheritance rights.
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However, the same does not apply to cohabiting couples, as the rules do not apply to them in the same way.
The same goes for the transmission of housing, because only married people and civil partnerships can do so without an IHT invoice.
Claire Chisnall, an attorney at Stowe Family Law, addressed the issue and some of the complications that can arise from it.
She said: “There is still a belief that if you have been in a cohabiting relationship, especially over a long period of time, you would have the same legal rights as if you had been married. This is a myth and has no legal basis.
“This leads many cohabiting couples to think they don’t need to look for other ways to protect themselves financially, when in fact they do.”
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However, cohabiting couples are not entirely helpless in this situation, and there may be alternatives they might wish to consider.
One is a cohabitation agreement, allowing unmarried couples to state their intentions when they first move in together.
This could include what would happen to any property if they separated, or arrangements regarding shared children.
Ms Chisnall continued: “These agreements can be persuasive in property disputes in the future if properly prepared.
“They can assist in a request for an inheritance document in the event of a party’s death, if the agreement clearly sets out what the parties’ intentions in life were and the financial arrangements available to them.”
Above all, cohabiting couples are strongly encouraged to obtain a last will and will.
This document clearly states a person’s wishes at the time of their death and can be helpful in dealing with the estate.
Ms Chisnall added that this can be vital as cohabiting couples do not have the same life and death rights as married couples.
She added: “Without a will, a cohabitant can claim under the Inheritance (Family and Dependent Provision) Act 1975, if they have been in a relationship for at least two years until the death of her partner, and that they lived in the same household as if they were a married couple.
It should be noted that these claims are complicated and expensive to advance, and therefore any outcome is difficult to predict.
The expert concluded: “While the law needs to change in line with the growing cohabitation trend, the government’s response to the report reinforces that it is unlikely to happen soon.
“Therefore, people need to take steps to protect themselves financially, and a cohabitation agreement and Will are two ways to do that.”