A benefit of marriage - Census Financial Planning

Jan. 4, 2012 - PRLog -- However these people are missing out on potentially huge tax savings as they cannot benefit from the Inheritance Tax (IHT) exemption for transfers between UK domiciled spouses and civil partners.  Additionally they cannot transfer the Nil Rate Band on first death.  It may sound odd to be talking about tax savings in marriage or civil partnership, but putting it another way you might be able to save significant sums in IHT.

To help solve this problem, co-habiting clients may want to arrange for life assurance to help pay any IHT liability, however unlike couples in marriage or civil partnerships, there could be an IHT liability on first death, even if they simply want to leave everything to their ‘partner’.  Life assurance policies would normally be written in trust and therefore it is also likely if using a discretionary trust that the cohabitee’s name will have to be added to the beneficiary classes as it is unlikely to be covered by standard trust wording.

Additionally cohabiting couples need to consider making a will, otherwise they could face significant problems.  Dying without a will means the deceased’s estate will be distributed according to the laws of intestacy.  The problem arises in that the law and intestacy rights does not recognise a ‘common law marriage’.  This was confirmed only last year in a government response to the Law Commission’s 2007 report.

Any assets owned jointly and held as joint tenants will automatically pass to the surviving owner.  However anything owned in the deceased’s sole name, known as the free estate, would be subject to the laws of intestacy which will mean losing control over who benefits.  This could even include the deceased’s share of their home, which the survivor will still be living in, if the property was held as tenants in common.

The following shows how the estate could be distributed in England, Wales and Northern Ireland.  Different rules apply for Scotland, if you need details on these please contact us.  Any free estate will be distributed to the first of the following categories, split into equal shares if more than one person fulfils that category.

1.   Children, if a child has already died, their issue (children) take the deceased’s share provided they attain age 18.
2.   Parents
3.   Brothers and sisters, or their issue
4.   Half brothers and sisters, or their issue
5.   Grandparents
6.   Uncles, aunts, or their issue
7.   Parents’ half brothers and sisters, or their issue
8.   The Crown

It is possible to use a deed of variation to redirect an inheritance, however if you are a cohabite, it would be better not to have to rely on the generosity of possibly remote family members as they may not want to give up their inheritance.  If anyone under 18 inherits then court permission will be required.

It may be possible to make a claim against the estate under various different Acts (depending upon where you are domiciled), however this claim is limited to a sum equivalent to maintenance.

It is therefore entirely possible that you could be cohabiting with someone who has children from a previous marriage whom you now consider your own and yet they would be entitled to nothing in the event of your death UNLESS you make a will.


Paul Dixon
Chartered Financial Planner

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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.