Inheritance Planning for Unmarried Couples: Protecting Your Partner

For married couples and civil partners, the UK tax and legal system provides a comprehensive set of protections: unlimited IHT spousal exemption, automatic next-of-kin status, pension death benefits, automatic intestacy rights, and the ability to transfer unused nil rate bands. For unmarried couples — however committed, however long-established — none of these protections exist by default.

The legal and financial exposure of an unmarried partner on their partner's death is substantial. This guide sets out the risks clearly and explains the planning tools available.

The Inheritance Tax Problem

Spousal exemption: zero for unmarried couples. When assets pass between spouses or civil partners, they pass free of IHT. This is unlimited — an estate of any size can pass to a surviving spouse without an IHT charge. For unmarried partners, this exemption simply does not exist.

This means that an unmarried partner who inherits their deceased partner's estate pays IHT on everything above the deceased's nil rate band (currently £325,000, potentially up to £500,000 including the residence nil rate band for qualifying estates).

Example: Alex dies with an estate of £800,000, leaving everything to their unmarried partner Sam. The nil rate band is £325,000. IHT is charged at 40% on £475,000 = £190,000 of IHT due. Sam does not qualify for the spousal exemption. If Sam cannot raise £190,000 — which may be difficult if the estate consists primarily of property — they may face a forced sale of the family home to pay the tax.

The contrast with a married couple is stark: in exactly the same scenario, if Alex and Sam were married, the entire £800,000 would pass to Sam free of IHT, and Sam would inherit Alex's nil rate band too, potentially shielding £650,000 on Sam's own subsequent death.

No Automatic Next-of-Kin Rights

The concept of "next of kin" has no single statutory definition in English law, but in practice, hospitals, banks, financial institutions and government bodies treat next of kin as the spouse, civil partner, or closest blood relative of an individual.

An unmarried partner — however close — has no automatic legal standing to:

• Access the deceased's bank accounts or investment portfolios.
• Make financial decisions during incapacity.
• Receive information from hospitals or medical professionals about a partner's health or treatment.
• Be consulted about end-of-life decisions.
• Register the death (though partners can do so if present).

These are not theoretical concerns. In practice, a long-term unmarried partner who has shared a life with someone for 30 years may find banks refusing to discuss accounts, hospitals refusing to provide information, and estates requiring full probate before any assets are accessible — all while grieving.

Pension Death Benefits

Most occupational pensions and SIPPs allow the scheme member to nominate who they wish to receive their pension death benefits. For defined contribution pensions, the death benefit is typically the fund value; for defined benefit pensions, it may be a lump sum or spouse's pension.

An unmarried partner should be nominated as the preferred beneficiary on a discretionary basis. However, the trustees of a pension scheme have discretion and are not legally bound by the nomination. In practice, trustees generally follow nominations, but the discretionary nature means there is no guarantee — and in contested estates, other claimants (such as estranged spouses) may complicate matters.

Nomination of beneficiary forms should be kept up to date and reviewed whenever circumstances change.

Solutions: What Can Be Done

1. Write Wills

This is the most fundamental step. Under the intestacy rules, an unmarried partner receives nothing from the deceased's estate. A will that specifically leaves assets to a partner overrides intestacy, but it does not solve the IHT problem.

Wills for unmarried couples should be drafted by a specialist solicitor and reviewed regularly — particularly after any change in the value of the estate, the composition of assets, or the family circumstances. "Mirror wills" (where each partner leaves everything to the other) are common but may not be optimal for IHT.

2. Life Insurance Written in Trust

A life insurance policy written into a suitable trust is one of the most effective tools for protecting an unmarried partner. The policy pays out on death; because it is held in trust, the proceeds do not form part of the deceased's estate and are not subject to IHT. They are also available quickly — without waiting for probate — and can fund the IHT liability on the underlying estate, enabling the partner to keep the property and other assets without a forced sale.

The correct trust structure for the policy depends on the specific circumstances. An experienced adviser should review the options.

3. Lasting Powers of Attorney

Lasting Powers of Attorney for property and financial affairs, and for health and welfare, are essential for unmarried couples. They provide the legal authority to manage a partner's affairs if they lose capacity — access to bank accounts, payment of bills, management of investments, and involvement in medical decisions.

Without LPAs, an unmarried partner would need to apply to the Court of Protection to be appointed as a deputy — a costly and time-consuming process with no guaranteed outcome, during which the partner's affairs may be frozen.

4. Cohabitation Agreement

A cohabitation agreement is a legal contract that sets out how the couple's assets, income and liabilities will be treated during their relationship and on separation or death. It can specify which assets belong to whom, how jointly held property is to be dealt with, and what financial provision is intended for each party.

Cohabitation agreements are not automatically enforceable in the same way as financial consent orders on divorce, but a well-drafted agreement can provide strong evidence of the parties' intentions and is treated seriously by courts in disputed cases. It is most valuable as a planning tool rather than a litigation tool.

5. Property Co-Ownership Structure

For the family home — often the largest single asset — the structure of co-ownership matters.

Joint tenants (joint ownership with right of survivorship): on the death of one owner, their share passes automatically to the survivor outside the estate, without the need for probate. This is straightforward and provides immediate security of tenure. However, the value of the deceased's half does still form part of their estate for IHT purposes, and the automatic survivorship means neither partner can leave their share to anyone else.

Tenants in common: each partner owns a defined share (not necessarily 50/50) which they can leave by will as they choose. This gives more flexibility — particularly where there are children from previous relationships who need to be protected — but the share does form part of the estate and requires probate to transfer.

For unmarried couples, tenants in common with a carefully drafted will and life insurance policy is often the more appropriate structure, as it protects the partner's right to remain in the property while preserving flexibility for the broader estate.

6. Consider Civil Partnership

For couples who do not wish to marry but want legal equivalence, civil partnership in England and Wales provides exactly the same legal and tax status as marriage. All IHT exemptions, spousal transfers, pension rights, intestacy rights, and next-of-kin status apply equally to civil partners.

Whether to register as civil partners — like whether to marry — is a personal decision. But where the primary objection to marriage is the ceremony or the cultural associations rather than the legal consequences, civil partnership is worth considering as a purely practical step.

The Inheritance (Provision for Family and Dependants) Act 1975

As a last resort, a cohabiting partner may be able to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975. To succeed, the applicant must show that they were living with the deceased as their partner for at least two years immediately before death, and that the will (or intestacy) fails to make reasonable financial provision for them.

This is not a planning strategy. It is uncertain, expensive, and deeply distressing — litigation against the estate of your deceased partner, contested by their other beneficiaries. It is mentioned here only so that people in difficult circumstances are aware it exists.

How Global Investments Can Help

Global Investments advises unmarried couples on structuring their financial affairs to protect each other effectively. We work with specialist solicitors on wills, LPAs and cohabitation agreements, and advise on life insurance structures, property ownership and IHT planning. These conversations are not always easy, but they are far easier now than dealing with the consequences of not having had them. Please contact our team.