This week we’re supporting Resolution to help raise awareness about the lack of legal protection for cohabiting couples.
In our second Q&A as part of Cohabitation Awareness Week, Sabrina Richards highlights how unmarried couples can structure and safeguard their assets in life and on death for their partner, and the importance of planning for the future.
If we’re not married but own a house together and my partner dies, what happens to their share?
It all depends how you own your property – either as joint tenants or tenants in common.
If you own as joint tenants your share passes to the surviving co-owner automatically without a Will, but it is subject to inheritance tax.
If you own as tenants in common, it will depend on whether you have a valid Will and what it states. If you have a valid Will your share will pass to the person described in your Will.
If you do not have a valid Will your share passes in accordance with intestacy rules. Under these rules, unmarried partners do not automatically inherit your property.
Is there anything I can do if my partner does not leave me their share in their Will or I do not benefit under the intestacy rules?
You can make an application to court under the Inheritance (Provision for Family and Dependants) Act 1975 for an interest in the estate if you meet the requisite criteria, however there is no guarantee of success.
What are my options if I live with my partner and want to give them one of my properties?
Two of the main issues to consider are the risks and tax implications of giving away your asset.
If you make an absolute gift of your assets to another person in life or on death, they pass into their free estate. That means that those assets are then theirs to use, give away during their lifetime and pass in accordance with their Will. Although you may trust your partner implicitly, if there is a relationship breakdown or you suffer financial difficulties such as bankruptcy, this is a decision you may live to regret.
When making gifts, you also need to be mindful of the tax implications. Cohabiting couples do not benefit from the same tax reliefs as married couples such as the spouse exemption, which enables them to pass assets to each other during their life and on death without an inheritance tax.
Inheritance tax is a charge on the value of a person’s estate on death and on certain gifts made during their lifetime. When a person dies, the value of their estate above £325,000 (the current ‘nil rate band’) is chargeable at a rate of 40%. The nil rate band can be used up by lifetime gifts made in the seven years prior to the date of death.
Capital gains tax is also chargeable during your lifetime and triggered on the disposal of an asset (sale or gift), and payable on the increase in value of the asset since you acquired it.
Although there are some reliefs available such as principal private residence relief, these are few and far between so when tax is involved, it is always worth seeking specialist advice.
If my partner loses capacity, how can I help them make decisions?
Make sure your loved ones are prepared by planning appropriately, otherwise no-one will be able to step in and make a decision for them if they lose capacity.
For example, without proper planning, an application would need to be made to the court of protection for a deputyship order which is costly and time consuming in already traumatic circumstances.
This can be avoided by preparing and registering documents known as Lasting Powers of Attorney (LPAs). LPAs allow an individual to choose people (attorneys) to make decisions for them when they are unable to do so about their financial affairs and health and welfare matters.
If your partner lost mental capacity and did not have an LPA (or a pre-2007 style power of attorney, an Enduring Power of Attorney) then you would not be able to make any decisions for them. You could not sell the house, pay their bills using their funds or make decisions about their medication or treatment.
LPAs are extremely useful documents and should be considered at the earliest opportunity.