Unmarried? Your home could come with an inheritance tax bill

There's no such thing as common law marriage in England and Wales. You can live together for 20 years and raise 3 children. For inheritance tax your partner is still treated like anyone else you leave money to.

Take a simple example. You leave everything to your partner. Your share of the home is worth £450k for tax and you have £20k in savings, so your estate is £470k.

The first £325k is covered by the nil rate band, the allowance everyone gets. The remaining £145k is taxed at 40%, which comes to £58k. The only cash in the estate is your £20k of savings. If the bill has to be paid in one go, your partner is £38k short.

There's a second allowance worth up to £175k for a home, but it only applies when the home goes to direct descendants, such as children (including step, adopted and foster children) and grandchildren, or their spouses or civil partners. Leave it to a partner and you lose it.

And unlike a married couple, you can't pass unused allowances to each other. When your partner later dies, whatever they inherited from you is counted again in their estate, with only their own allowances to set against it.

Who pays and when

Your executors pay the tax from the estate. It's due by the end of the 6th month after the month of death and HMRC charges interest after that. They usually have to pay at least part of it before they can get probate, the legal authority to deal with your estate.

How you own the home changes what happens next. If you own it as joint tenants, your share passes to your partner straight away. They can register the home in their own name with a death certificate, without waiting for probate. The tax on your share still has to be paid. If the estate can't cover it, HMRC can ask your partner to pay.

If you own it as tenants in common, your share passes under your will and usually can't be sold or transferred until your executors have probate. That's the trap.

Not with the tax. Ownership decides who gets your share of the home. Either way that share counts towards your estate.

Joint tenancy has a real advantage for an unmarried couple, because your partner gets the home even if your will is out of date or missing. But it's all or nothing. You can't leave your share to anyone else, which matters if you have children from an earlier relationship.

Tenants in common gives you that control, but only if you have a will. Without one, the intestacy rules in England and Wales give an unmarried partner nothing. Your share goes to your children or other relatives instead. If you lived together for the 2 years before your death, your partner can ask a court for reasonable provision, but that's slow, costly and uncertain.

Don't assume you each own half, either. Both names on the deeds doesn't prove a 50/50 split. The tax value of a share can also be lower than a straight fraction of the home, because HMRC can accept a discount when a share on its own is harder to sell. Get the ownership confirmed and the share valued properly.

Changing from joint tenants to tenants in common, or the other way round, also changes what your will can do with the home, so update your wills at the same time.

Some of these only work while you're both alive. Once one of you has died, you can't marry. The one who has died can no longer make gifts or start their 7 year clock. Nobody can take out cover on the life that's gone and a joint tenancy can't be changed.

I'd start with the cash, because that's what your partner would face in the first 6 months. Then I'd look at cutting the bill and making the paperwork match.

Make cash available

Work out the tax on today's figures, then compare it with the cash your partner could actually reach in the first 6 months. The difference is the number you're planning for. Don't count your partner's own savings as spare. They may be there to support their lifestyle or retirement.

Life cover written in trust is the most direct way to fill the gap. The payout goes to the trustees rather than into your estate, so it isn't taxed with the estate and doesn't wait for probate. The trustees can pass the money to your partner or lend it to your executors to pay HMRC. In my example, £60k of cover in trust would clear the £58k bill.

Instalments buy time at a price. In the example about £8k is due at the 6 month deadline: the first tenth of the tax on the home plus the tax on the savings, which can't be spread. The £20k of savings covers that.

Size any cover to the shortfall rather than the whole estate. If the home goes up in value, the shortfall goes up with it, so check the figure again every few years.

Reduce the bill

There are 3 routes here. Marriage removes the tax on the first death, gifts take value out of your estate over time and your pension may soon count where it didn't before.

Marriage or a civil partnership. What you leave a spouse or civil partner is generally free of inheritance tax, so in the example the bill on the first death drops from £58k to nothing. The survivor can also inherit your unused allowances.

A civil partnership gives the same exemption and is open to opposite sex couples too. In England, Wales and Northern Ireland, either one cancels any existing will unless it was made in expectation of that marriage or partnership, so you'd usually both need new ones.

If you're long term UK resident and your partner isn't, the exemption is capped at £325k unless they choose to be treated as long term UK resident for inheritance tax.

Gifts. Most gifts fall out of your estate if you live another 7 years. Regular gifts from surplus income can be exempt straight away, as long as you can keep up your normal standard of living. Everyone can also give £3k a year without it counting.

Giving away your home while you carry on living in it usually doesn't work. There's a narrow exception for a home you both live in. Giving your partner part of your share need not be caught, provided you get no more than a negligible benefit from them connected with the gift. It still takes 7 years to fall out of your estate and needs advice on the mortgage and what happens if you separate.

Your pension. From 6 April 2027, most unused pension funds and death benefits will count towards your estate for inheritance tax. Pensions left to a spouse or civil partner stay exempt. Pensions left to an unmarried partner won't be. If your pension is a big part of your wealth, check your nominations and run the numbers again.

Make the paperwork work

Sit down together and agree 3 things: who should end up with the home, who pays any tax and where that money comes from. Then make everything point the same way.

With those in front of you, you can run the example above on your own figures and see which gap is biggest.