As it becomes more and more common for couples to live together without marrying or entering into a civil partnership, it becomes more and more important to understand what happens when an unmarried partner dies.

The government is also expecting to provide more rights for cohabiting couples.

“But we’re common-law married!”

Common law marriage does not exist.

The current law does not give special status to couples who live together but are not married or in a civil partnership. If you are cohabiting, the law essentially treats this as if you had bought a house with a stranger.

How to protect your money when buying a house together

Where unmarried people buy a house together, they may well each contribute different amounts to the deposit, and may also pay the mortgage unequally. These unequal contributions can be protected in a declaration of trust, which sets out who owns what share of a property. Without anything in writing, the presumption is that the property is owned equally.

If a married couple has a declaration of trust and then divorces, the court may deviate from it as part of the financial orders. That is not the case with unmarried couples – at least currently.

Inheritance tax

Gifts to spouses and civil partners are exempt from inheritance tax, whether they are made during lifetime or on death.

A gift to an unmarried partner does have a similar exemption and will instead use up the deceased’s Nil Rate Band. If the deceased is leaving their share of their house to their unmarried partner, the Residence Nil Rate Band is not available either, as the house is not left to a direct descendant. That means that if the estate is worth more than £325,000, there will be inheritance tax to pay. Depending on the size and composition of the estate, that could mean the house has to be sold to pay the tax, thus depriving the partner of their own home.

By contrast, a married couple leaving everything to each other on first death would pay no inheritance tax, and if they left everything (including the family home) to their children on second death, the threshold would be £1 million.

Why you need a Will

Currently, unmarried partners do not feature in the intestacy rules. This means that they would only inherit assets held as joint tenants, such as joint bank accounts and some properties. Assets held in the deceased’s sole name or as tenants in common would instead pass to their nearest blood relatives. The surviving partner’s only real option is to claim under the Inheritance (Provision for Family and Dependants) Act 1975 for reasonable financial provision. However, they would have to have lived together for at least two years as if they were a married couple, and any claim would be limited to what they need for their maintenance (i.e. day to day living costs).

It is therefore particularly important for unmarried couples to make Wills where they have a declaration of trust for their property, as they have to own it as tenants in common.

In 2021 there were plans in the House of Lords to include unmarried partners in the intestacy rules, provided that they had been living together for three years as a married couple or had a child together. Without government backing, though, these proposals never went anywhere. Now, though, that might be about to change.

Government plans

The new government pledged in its manifesto to strengthen the rights and protections of women in cohabiting relationships. It will therefore be consulting on reforming cohabitation law. It is still very early days so details are sketchy, but could involve an opt-out scheme to protect cohabitees who are financially vulnerable. That said, any scheme that could resemble financial orders on divorce will have to tread a tightrope. Many couples decide not to get married because they do not want to risk losing their own assets on a split-up.

A recent poll by the Will-writing scheme, Will Aid, has revealed that 65% of people think the intestacy rules should include unmarried partners. Around three quarters of unmarried partners were unaware of what would happen on death if they did not have Wills.

Similarly, any change to the intestacy rules could be controversial. Many will believe that unmarried partners by definition have chosen not to leave their estates automatically to each other. If they say they want to ensure that the survivor gets the estate, they should either make Wills or get married.

How we can help

Whatever the government decides to do, there is only one way to guarantee that your assets will go to the people you want, and that is to make a Will.

For further advice and assistance please contact our Wills, Trusts and Probate team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk.

Introduction:

Inheritance tax is an unavoidable reality for many individuals when passing on their assets to loved ones. However, there are legal avenues that allow individuals to minimise this tax burden. One common misconception is transferring property to family members before death. While this may seem like a straightforward solution, it is crucial to recognise the complexities involved and the significance of seeking professional legal advice.

In this blog post, we will explore the importance of taking legal advice before transferring property to family members as a means to mitigate inheritance tax.

Understanding Inheritance Tax in the UK:

In the UK, inheritance tax is a tax on the estate of a deceased individual. The threshold for inheritance tax is currently set at £325,000, known as the “nil-rate band.” Any amount above this threshold is normally subject to a 40% tax rate. For those with considerable assets, this can amount to a substantial tax liability.

There is also the availability of the Residence Nil Rate Band where certain conditions are met. Where applicable, a further threshold of £175,000 can be claimed.

Transferring Property to Family in the UK:

Many individuals in the UK consider transferring property to family members in an attempt to reduce their inheritance tax liability. However, there can be many unintended consequences and this process requires careful consideration and adherence to UK legal regulations. Seeking legal advice from professionals such as our team at Franklins Solicitors, is crucial to ensure compliance and prevent unintended consequences.

How can a solicitor help?

Expert Guidance: A solicitor who is an expert in inheritance tax can provide expert guidance tailored to your specific circumstances. For example, our Wills & Probate team has an in-depth understanding of UK inheritance tax laws and regulations, ensuring that you receive accurate and up-to-date advice.

Personalised Strategies: Our legal experts can assess your situation, taking into account your assets, family dynamics, and future goals, to provide tailored solutions that are both effective and legally sound.

Maximising Exemptions and Allowances: Our experienced solicitors have in-depth knowledge of the various exemptions and allowances available for inheritance tax purposes. They will explore every available option, such as the residence nil-rate band or business property relief, to maximise tax savings for your estate.

Structuring Property Ownership: We can guide you in structuring property ownership in the most tax-efficient manner. We’ll consider trusts, joint ownership, or lifetime gifts, ensuring that you protect your assets while complying with UK tax laws.

Peace of Mind: By seeking legal advice, you can have peace of mind knowing that your assets are safeguarded. Our expertise and attention to detail will help you navigate the complex legal landscape, minimising the risk of errors or unintended consequences.

Conclusion:

When it comes to minimising inheritance tax liability through property transfers to family members, seeking professional legal advice is paramount. Our team of experienced solicitors possess the expertise and knowledge to provide you with tailored advice specific to your circumstances.

By engaging with a solicitor, you can ensure compliance with UK inheritance tax laws, explore available exemptions and allowances, and structure property ownership in a tax-efficient manner. This proactive approach not only safeguards your assets but also provides peace of mind, knowing that you have taken the necessary steps to protect your legacy and maximise the value you pass on to your loved ones.

For further advice and assistance please contact our Wills & Probate team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

 

As of today, 6th April 2020, the Residence Nil Rate Band (RNRB) has increased to £175,000 per person.

Q: So, what is the Residence Nil Rate Band?

A: The RNRB is an additional inheritance tax allowance which came into force in April 2017. The allowance was initially set at £100,000, increased each tax year by £25,000 until tax year 6th April 2020/21 where it is set at £175,000, increasing the following tax years in line of inflation.

The additional inheritance tax allowance is available when you leave a ‘qualifying property’ directly to a ‘direct descendant’.

Q: What is a ‘qualifying property’?

A: Only one property can qualify for the RNRB and therefore, if you own and lived in more than one property, your executor can pick which property to apply the tax relief to.

What is essential is that the person who has died, must have owned and lived in the property at some point during their lifetime.

Q: What happens if I sell a property before my death that would have qualified?

A: This may not be a problem, as the government have provided for this scenario within the ‘downsizing provisions’. This is a complex area and professional advice may be required to assist with the calculation to ensure that the correct tax allowance is applied.

Q: Who is considered a ‘direct descendant’?

A: Accordingly to government guidelines:

This also includes:

Q: What if I don’t use it?

A: This is quite common, especially where a married couple leaves everything to the survivor on first death. The law provides for this scenario and confirms that the RNRB, or a proportion of it, can be transferred between spouses. This is known as the Transferable Residence Nil Rate Band. Therefore, provided that the surviving spouse leaves a qualifying property to a direct descendant, then the allowance can be claimed.

It is important to note however, that, as with other provisions relating to Inheritance Tax, the additional tax allowance can only be transferred between spouses/civil partners. It does not apply to cohabitees.

Q: What does this mean for Inheritance Tax?

A: The current rules provide that a married couple, leaving everything to each other and then down to children may have a combined tax free allowance of £1,000,000. This includes the Nil Rate Band currently set at £325,000, together with the RNRB of £175,000, both of which can be transferred between estates of spouses if unused.

For everyone else, this provides that they may have an allowance of £500,000 (taking into account their own Nil Rate Band of £325,000 and their Residence Nil Rate Band of £175,000) provided that the criteria for claiming the same are met.

Q: So, what do you need to do?

A: You may wish to give careful consideration to preparing or reviewing your Will to ensure tax efficiency in light of recent changes. Specialist advice is recommended as the manner in which your Will is prepared may affect the eligibility of the Residence Nil Rate Band. For example, the use of Trusts may affect it’s availability but will depend on the type of Trust itself. 

For advise and assistance in relation to future and Estate Planning, contact our expert Private Client team today on 01908 660966 / 01608 828282 or email privateclient@franklins-sols.co.uk.