Inheritance tax for unmarried couples

Inheritance tax is a tax on the estate of someone who has died. Their estate includes all their property, possessions, and money. The standard inheritance tax rate is 40%. It’s only charged on the part of your estate that’s above the tax-free threshold. The tax-free threshold is currently £325,000. Different exemptions and allowances can be applied to reduce the inheritance tax payable.  

Yes. The special rules that apply to married couples or those in a civil partnership do not apply to unmarried couples. There is, unfortunately, a very real risk for cohabiting couples to find themselves double-taxed - with inheritance tax being payable on both the first death and again on the second.  

Property that is held by two individuals as joint tenants is not exempt from inheritance tax. When one owner dies, their share in the property will pass automatically to the surviving co-owner or joint tenant (regardless of any will or the intestacy rules).  

However, the deceased joint tenant's share of the jointly owned property still forms part of their estate for inheritance tax purposes. However, unlike married couples who benefit from the special rules to reduce or completely wipe out inheritance tax, unmarried couples don’t have any exemptions. This means inheritance tax needs to be paid if the total estate is worth over £325,000.  

There are special rules (known as exemptions) for married couples or those in civil partnerships:  

• When you die, assets left to your spouse or civil partner, provided they're living in the UK, are exempt from inheritance tax.  
• On top of this, if your estate is worth less than your threshold, any unused threshold can be added to your spouse’s inheritance tax threshold and can be used to minimise the tax payable when they die. This means a married couple can currently leave assets worth up to £1 million tax-free.  

 These special rules do not apply to unmarried or cohabiting couples. 

If your partner dies without having made a will then you will receive nothing under the rules of intestacy because they do not include cohabiting partners. However, any assets you and your partner hold as joint tenants (such as a house or a bank account) will pass to you automatically as the surviving owner. However, there could be inheritance tax payable on those assets.

If you're joint tenants and your partner has left everything to you in their will, and if the value of your partner's assets (including your jointly owned property) exceeds the inheritance tax threshold, you would have to pay inheritance tax. However, on your partner's death, the property would be owned by you completely. 

Even if your partner didn't leave a will, thanks to the “right of survivorship”, the property would still go entirely to you although the inheritance tax rules would still apply.  

If you're tenants in common (eg, you each own a specified percentage of the property), it's more complex. If your partner has made a will leaving their share of the property to you, any inheritance tax would need to be paid out of the estate first before the assets can be shared out. Inheritance tax may need to be paid but it would depend upon the value of the rest of the estate.  

If your partner has not made a will leaving their share to you, and you're tenants in common, their share will go to their relations. As an unmarried partner, you'd only be entitled to the share of the property you currently own.