More than 3.5 million unmarried couples living together are being cautioned that they could be missing out on significant tax advantages and legal protections worth hundreds of pounds annually. The warning follows the Government's announcement of proposals to bolster the rights of cohabiting couples, prompting financial experts to call on unmarried partners to take a closer look at their finances.
Marriage Allowance Exclusion
According to NFU Mutual, one of the most significant financial disadvantages is that cohabiting couples are unable to claim the Marriage Allowance, an HMRC tax benefit worth up to £252 a year. The allowance permits a non-taxpayer to transfer a portion of their unused personal allowance to a basic-rate taxpayer spouse or civil partner. Claims can also be backdated, potentially increasing the overall sum received. However, Sean McCann, Chartered Financial Planner at NFU Mutual, noted that unmarried couples are excluded from this benefit, despite a growing number of people opting to live together without tying the knot.
He 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."
Inheritance Tax and Legal Rights
The concerns stretch well beyond income tax. Mr McCann warned that many cohabiting couples mistakenly believe they hold the same legal rights as married couples, only for difficulties to arise upon the death of a partner. Under intestacy rules, an unmarried partner has no automatic entitlement to inherit should their partner die without a will, regardless of the length of their relationship or whether they have children together.
"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," he said. Inheritance tax can also prove a significant burden. While married couples and civil partners are generally able to pass assets to one another free of inheritance tax, unmarried couples are not afforded the same exemption. This means a tax liability could arise when assets are left to a surviving partner.
Property and Pensions
Further complications may emerge over jointly owned property. NFU Mutual advised couples to establish whether they own their home as joint tenants or tenants in common, as this can determine what becomes of a share of the property upon death. Pensions represent another area where cohabiting couples can find themselves at a disadvantage. Mr McCann cautioned that survivor benefits differ between pension schemes, and difficulties can arise if a partner has not been formally nominated to receive death benefits.
Life insurance policies should equally be reviewed, particularly where they have been placed in trust, to ensure a cohabiting partner would actually receive any payout. The warning comes as ministers weigh up reforms intended to strengthen the legal standing of cohabiting couples, a group that has grown considerably in recent decades and now accounts for more than 3.5 million households across the UK.
Expert Advice
For now, experts urge unmarried couples not to assume they enjoy the same protections as married couples and should ensure wills, pension nominations and insurance arrangements are kept current. By taking proactive steps, cohabiting partners can mitigate potential financial pitfalls and secure their financial future.
