1) Wills and Intestacy
Sean McCann said: “Too many people put off writing a will but it’s especially important for cohabiting couples as the laws of intestacy don’t provide for unmarried partners. If someone dies without a will, their partner has no automatic right of inheritance, and this is the case regardless of how long the couple have lived together or whether they have children. The surviving partner would need to make a claim on their late partner’s estate, which can be a time consuming and expensive process, with no guarantee of success. Claims must normally be made within six months of the grant of representation in England and Wales and within six months of the death in Scotland. To ensure their partner is able to benefit from their estate, it’s vital that cohabiting couples have valid up to date wills in place.”
2) Property ownership
Sean explained: “It’s important for any cohabiting couple that own a property together to check how they own it. If the property is held as ‘Joint tenants’ this means that on the death of one of the partners, their share in the property will pass to the survivor. If it is held as ‘Tenants in common’ each is free to leave their share to whoever they wish in their will. Issues can arise if one of the partners dies without a will and their share of the property passes under the laws of intestacy to children, parents, siblings or other relatives. Ownership can be changed from ‘Tenants in common’ to ‘Joint tenancy’ but it’s important to seek legal advice.”
3) Tax
- Inheritance Tax
Sean explained: “Married couples can normally pass assets to each other free from inheritance tax, but cohabiting couples don’t benefit from this exemption. This can trigger an inheritance tax charge on any assets left to the surviving partner after the other passes away.”
- Capital gains tax
Sean explained: “Giving property and investments to a cohabiting partner can also trigger a capital gains tax charge.
“This can make it more difficult to utilise two annual exemptions of £3,000 or take advantage of a partner’s lower tax rate when selling or giving away second properties or investments.”
-Income tax
Sean said: “The marriage allowance allows non-taxpayers to transfer up to £1,260 of their unused personal allowance to their basic rate tax paying spouse or civil partner. It’s worth up to £252 this tax year and claims can be backdated but is not available to cohabiting couples.”
4) Pensions
Sean said: “If one or both partners are current or deferred members of Defined Benefit schemes, it’s important to check what level of survivor’s pension would be payable to a cohabiting partner as this will vary between schemes. With regards to defined contribution schemes, trustees can’t normally make death benefit payments to an un-named non-dependant where there is a living dependant. This can cause issues if the deceased partner leaves a dependent child and didn’t name their partner on the expression of wish form. Similarly, issues may arise with ‘Death in service’ schemes provided by an employer, where the deceased has left other dependants but not named their partner as a potential beneficiary.”
5) Life insurance in trust
Sean said: ‘’The advantage of putting life insurance policies into trust is that the proceeds are normally free from Inheritance tax and the money can be paid out quickly on production of a death certificate. If your policy isn’t in trust, most insurance companies can provide the necessary forms free of charge. Most trusts provided by insurers have standard classes of beneficiaries that include spouse, children and grandchildren. Trusts should be checked to establish if benefits could be paid to the cohabiting partner. This is particularly important if the life insurance policy predates the beginning of their relationship.”
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