Navigating Inheritance Tax Implications for Cohabitating Couples

In a rapidly evolving social landscape, cohabitation has become a prevalent lifestyle choice for many couples. However, when it comes to inheritance tax, cohabitating couples often find themselves in a challenging situation when it comes to writing their wills and making them tax efficient.

Inheritance tax laws are typically structured to provide certain benefits and exemptions for legally married or civilly partnered couples. Unfortunately, cohabitating couples may not automatically enjoy the same rights and protections. As a result, the passing of assets from one partner to another in the event of death can trigger tax liabilities that may not be evident in traditional marital arrangements.

In many jurisdictions, married couples benefit from generous estate tax exemptions and the ability to transfer assets to a surviving spouse without incurring inheritance tax. Cohabitating couples, however, may face a different reality. Upon the death of one partner, the surviving partner could be subject to inheritance tax on assets that exceed the prevailing tax-free threshold (currently £325,000).

While cohabitating couples may face additional challenges, they are not without recourse. Strategic estate planning can play a pivotal role in mitigating tax liability and ensuring that a partner’s legacy is preserved.

Crafting a comprehensive and legally sound will is of paramount importance for cohabitating couples. A well-drafted will can outline the distribution of assets and provide clarity on the intentions of the deceased partner. Additionally, cohabitants should explore the inclusion of specific provisions to minimize tax exposure and enable the surviving partner to inherit without undue financial burden.

Cohabitating couples may consider strategic lifetime gifting as a means of transferring assets while minimising tax implications. By gifting assets during their lifetime, partners can potentially reduce the taxable value of their estate, thereby decreasing the inheritance tax liability for the surviving partner.

Understanding the nuances of inheritance tax is crucial for preserving financial legacies and safeguarding the interests of both partners. Cohabitating couples can take proactive steps, such as strategic estate planning, crafting comprehensive wills, and seeking professional advice in relation to cohabitation agreements, to navigate the challenges posed by inheritance tax. By doing so, they can ensure that their intentions are realised, their financial well-being is protected, and their loved ones inherit their assets as they intended in most tax-efficient way possible.

This article was prepared by Naomi Augustine-Walker, a private client solicitor in our London office. You can contact Naomi by email: or by telephone: 020 3831 2669 For our Bromley office please call 020 8464 4242 and for Surrey the number is 01372 750100.