WillsGovernment Rejects Reform for Cohabitants in England and Wales

In August 2022, the House of Commons Women and Equalities Committee produced a report calling for reform to the law in England and Wales to protect cohabiting couples. Included within this was recommendations on the treatment of cohabiting couples for succession and inheritance tax purposes.

The Government has rejected most of the reports suggestions, including the proposals on succession and inheritance tax, stating that existing work on the law of marriage and divorce must conclude before it could consider changes to the rights of cohabitants. The Government also have no plans to extend the treatment of spouses and civil partners for inheritance tax purposes to cohabiting couples but will keep this issue under review.

Following this decision, we will take a look at the current rights of cohabitants compared to spouses and civil partners.

All references to a spouse in the remainder of this article include a civil partner.

Intestacy

Spouses have defined rights under intestacy. If the spouse has survived by 30 days and there are no surviving issue of the deceased, the spouse will receive the entire estate. If there are surviving issue and the spouse survives by 30 days, the distribution of the estate will be as follows.

• The spouse inherits all personal chattels.
• The spouse receives a statutory legacy of £270,000 plus gross interest.
• The spouse receives half of the remainder
• Children receive the other half equally between them. If any child has predeceased, that child’s issue receives their share per stirpes.

If the estate is worth less than £250,000, the spouse receives everything.

Cohabitants on the other hand have no rights at all under intestacy and will receive nothing under intestacy. They still receive assets outside of the intestacy, for example if the property was owned as joint tenants by the deceased and their partner.

Inheritance (Provision for Family and Dependants) Act 1975

Spouses may apply to the court for provision from the deceased’s estate under the Inheritance Act 1975 if the deceased’s estate does not provide reasonable financial provision for them. For the purposes of the Act, reasonable financial provision means such financial provision as it would be reasonable in all the circumstances of the case for a spouse to receive, whether or not that provision is required for their maintenance. This is known as the surviving spouse standard of provision.

Cohabitants do have some rights under the Inheritance Act 1975 but this is not the same level as spouses. A cohabitant who lived with the deceased for at least two years before the deceased’s death in the same household as if they were a married couple or civil partners can apply to the court for reasonable financial provision. However when the courts are accessing a cohabitant’s application, ‘reasonable financial provision’ is not the surviving spouse standard. Instead it is such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for their maintenance.

Cohabitants therefore only need to be provided for their maintenance whereas a spouse may be entitled to more than what is required for their maintenance.

Inheritance Tax (IHT)

Spouses receive a number of benefits for IHT.

1. Any transfers to a spouse are exempt for IHT purposes and no IHT is due.
2. If the nil rate band (NRB) or residence nil rate band (RNRB) are unused on death, the unused allowances are available to transfer to be used on the surviving spouse’s death. This potentially means up to £1,000,000 can pass free of IHT on the surviving spouse’s death
3. For RNRB purposes, stepchildren and their issue are treated as descendants

Unmarried couples receive none of these benefits. If a testator leaves their estate to their cohabitant this will be assessed for IHT and IHT will be due if this is above the NRB. NRB and RNRB is unavailable to transfer to the surviving partner. If a person leaves their property to the children of their unmarried partner, these will not be treated as descendants for RNRB purposes either.

If IHT is a concern for an unmarried couple, marrying or forming a civil partnership may be advisable to them so they gain the IHT benefits. If not they may wish to consider trust planning which can alleviate some of the issues.

Photo by Gabby Orcutt on Unsplash.