Inheritance Tax for Unmarried Couples
For inheritance tax, marriage changes everything. Married couples and civil partners can pass unlimited assets to each other tax-free, transfer their unused allowances, and pass on up to £1 million to the next generation without inheritance tax. Unmarried couples receive none of these benefits. A cohabiting partner who inherits can face inheritance tax at 40% on top of the nil-rate band, and the family home is often the biggest part of the problem.
The difference is not a judgement about relationships. It is simply the law. This guide explains where unmarried couples stand and the planning that puts them back on a more equal footing.
What Unmarried Couples Do Not Get
Under inheritance tax rules, an unmarried partner is treated no differently from any other individual:
- No spousal exemption. Assets passing to an unmarried partner are chargeable to inheritance tax like assets passing to a sibling or a friend. Above the £325,000 nil-rate band, the charge is 40%.
- No transferable nil-rate band. A married couple can combine their nil-rate bands, giving £650,000 between them. An unmarried couple cannot, and the unused allowance of a partner who dies is simply lost.
- No transferable residence nil-rate band. The same applies to the £175,000 residence nil-rate band. A married couple can pass on up to £1 million tax-free to their children; an unmarried couple’s allowance is fixed at the survivor’s own £325,000, plus their own RNRB if the home passes to their direct descendants.
- No RNRB for the partner. Because the residence nil-rate band is only available where a home passes to a direct descendant, a home left to an unmarried partner qualifies for no RNRB at all. The partner inherits a home with no inheritance tax allowance to set against it beyond the basic nil-rate band.
The Family Home
The family home is where the inheritance tax problem concentrates. Consider a couple who own a home worth £500,000 as tenants in common, each holding a half share, and a total estate of £600,000 for the first partner to die.
The deceased’s half share of the home is worth £250,000, and the whole estate is £600,000. Because the surviving partner is not a spouse, the estate is not exempt. Inheritance tax is due at 40% on everything above the £325,000 nil-rate band, and the residence nil-rate band is unavailable because the home is passing to a partner rather than a direct descendant. The bill can be five figures, on top of the emotional cost, and the survivor may have to sell the home to pay it.
A married couple in the same position would pay nothing: the estate passes to the spouse, both nil-rate bands are transferred, and the home is preserved.
How the Home Is Owned Matters
For unmarried couples, the ownership structure of the home changes the inheritance tax outcome:
Joint Tenancy
Under a joint tenancy, the home passes automatically to the survivor by survivorship. For an unmarried couple, that still means the deceased’s interest is part of their estate, and it is not covered by a spousal exemption. Inheritance tax can still be due, and the survivor pays it. Our guide to joint tenancy vs tenants in common explains the difference.
Tenants in Common
Under a tenancy in common, each partner owns a distinct share that passes under their will. This gives each partner control over where their share goes, but it does not remove the inheritance tax charge on a share passing to an unmarried partner.
In both cases the home is chargeable. The choice of ownership affects who inherits, not whether inheritance tax applies.
Dying Without a Will
The position is even worse where an unmarried partner dies intestate. Under the intestacy rules, an unmarried partner inherits nothing at all, regardless of how long the couple lived together. If the couple’s home is in the deceased partner’s sole name, the survivor can lose their home, and the estate passes to blood relatives under the intestacy rules.
A will is therefore not optional for unmarried couples. It is the single most important document they can put in place.
Planning for Unmarried Couples
1. Write Wills
Each partner needs a will that leaves their share of the home and other assets to the other. Without a will, the survivor inherits nothing and faces the intestacy rules.
2. Use the Lifetime Allowances
Unmarried couples have the same lifetime gifting exemptions as everyone else. Each partner has a £3,000 annual exemption, can make gifts from normal income, and can use the seven-year rule for larger gifts. These are the main tools for moving wealth between partners without inheritance tax.
3. Consider Insurance in Trust
Life insurance written in trust is the standard answer for unmarried couples. A policy held in trust pays out to the survivor outside the estate, and the proceeds are used to settle the inheritance tax bill without selling the home. Because the policy is in trust, it does not form part of either partner’s estate.
4. Own the Home the Right Way
Holding the home as tenants in common, rather than joint tenants, means each partner controls their own share. Where a couple want the survivor to stay in the home but also want to protect value for children, a life interest trust can let the survivor live there while the capital is preserved. Our guide to life interest trusts explains the structure.
5. Marriage and Civil Partnership Still Exist
A civil partnership or marriage converts an unmarried couple into a married couple for inheritance tax purposes, unlocking the spousal exemption, transferable allowances and the RNRB. For couples who are able to marry or enter a civil partnership, it is the single most effective inheritance tax planning step available, and it is worth considering on its own terms.