Valentine’s Day advice for cohabiting couples

10 February 2022

It may not sound particularly romantic but cohabiting couples should think about taking care of their financial affairs this Valentine’s Day or risk running into problems further down the line, says Sean McCann, chartered financial planner at NFU Mutual.

According to data from the Office for National Statistics, there are 6.3 million cohabiting couples in England and Wales who are not married or in a civil partnership, accounting for 27% of all couples living together.

McCann says these couples should consider their will as a first port of call.

“Too many people put off writing a will but it’s especially important for cohabiting couples as the laws of intestacy don’t provide for unmarried partners. If someone dies without a will, their partner has no automatic right of inheritance and this is the case regardless of how long the couple have lived together or whether they have children. To ensure their partner is able to benefit from their estate, it’s vital that cohabiting couples have valid up to date wills in place.”

Couples who own a property together will also need to understand the legalities of how they own it. If the property is held as ‘joint tenants’, this means that in the event of death their share in the property will pass to the survivor. If it is held as ‘tenants in common’, however, each is free to leave their share to whoever they wish in their will.

McCann says: “Issues can arise if one partner dies without a will and their share of the property passes under the laws of intestacy to children, parents, siblings or other relatives.”

Unlike married couples, cohabiting couples are also unable to pass assets to each other free from inheritance tax. This can trigger an inheritance tax charge on any assets left to the surviving partner after the other passes away.

Similarly, giving property and investments to a cohabiting partner can also trigger a capital gains tax charge. This can make it more difficult to utilise two annual exemptions of £12,300 or take advantage of a partner’s lower tax rate when selling or giving away second properties or investments.

Unmarried couples are also unable to benefit from the marriage allowance which allows non-taxpayers to transfer up to £1,260 of their unused personal allowance to their basic rate tax paying spouse or civil partner.

Pensions: DB and DC

McCann says couples should also consider their pensions and if one or both partners are current or deferred members of defined benefit schemes, check what level of survivor’s pension would be payable to a cohabiting partner as this varies between schemes.

McCann explains: “With regards to defined contribution schemes, trustees can’t normally make death benefit payments to an un-named non-dependant where there is a living dependant. This can cause issues if the deceased partner leaves a dependent child and didn’t name their partner on the expression of wish form.

“Similarly, issues may arise with ‘Death in service’ schemes provided by an employer, where the deceased has left other dependants but not named their partner as a potential beneficiary.”

Finally, couples should consider the rules of life insurance in trust. While most trusts provided by insurers have standard classes of beneficiaries that include spouse, children and grandchildren, trusts should be checked to establish if benefits could be paid to the cohabiting partner, particularly if the policy began before the relationship.

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Professional Paraplanner