The number of couples choosing not to marry and instead deciding to live together continues to rise. Many couples are caught out by the "common law marriage myth" and are surprised to find out that they have no automatic entitlement to their cohabiting partner's estate on death. This blog considers some of the inheritance tax and succession issues which arise from cohabiting relationships in Scotland, and what you can do to plan for the future.

1 – Disinheritance where there is a will in place

If a cohabitant dies with a will in place which excludes their partner, the surviving cohabitant does not have a claim in the estate. This is different to married couples, as the surviving spouse or civil partner has an automatic entitlement to a share of the deceased's estate (known as legal rights). It is perhaps, therefore, even more important that couples living together, who are not married or in a civil partnership, put wills in place.

2 – Where there is no will in place

Where there is no will in place, the surviving cohabitant can apply to the court for limited financial provision where the following requirements are satisfied:- 

  • immediately before the death, the couple must have been cohabiting together as if they were husband and wife or civil partners;
  • immediately before the death, the deceased was domiciled in Scotland; and
  • the application must be made by the surviving cohabitant within 6 months of the date of death. This is a strict time limit which cannot be extended.

There is no automatic entitlement to any of the estate on intestacy. The only exception to this is where the couple jointly own a property, and there is a provision in the title automatically transferring the property to the survivor.

The amount awarded by the court cannot be more than what the surviving cohabitant would have received if they were married to or in a civil partnership with the deceased.

In its Stage 1 report on the Trusts and Succession (Scotland) Bill, the Delegated Powers and Law Reform Committee recommended the current 6-month time limit is extended to one year. The Scottish Government has previously announced its intention to legislate on this basis. Our private client team will keep an eye on developments here and provide updates when they become available.

3 – Inheritance tax ("IHT")

The law is particularly favourable to spouses and civil partners when it comes to IHT. Anything which passes to a spouse or civil partner during lifetime or on death is exempt from IHT. However, if you are not married or in a civil partnership, and leave your estate to your partner, this will not be exempt from IHT and your partner will receive their share after any IHT is deducted. Any gifts made to a cohabitant during lifetime are similarly not exempt for IHT purposes, which may leave a surprise IHT bill for a loved one to pay.

For example, if you made a gift of £350,000 to your partner during your lifetime, this would be known as a "potentially exempt transfer". The gift is potentially exempt from IHT at the time it is made. It will become completely exempt if you survive for 7 years after making it. However, if you die within 7 years of making this gift, IHT of up to £10,000 would be payable. It is your partner who would be responsible for paying this bill.

If you are married or in a civil partnership, any part of your IHT nil rate band (currently £325,000) and residence nil rate band (currently £175,000) that is unused on the first death can be transferred to the survivor on the second death. This means up to £1 million can pass tax-free. For unmarried couples, it is not possible to transfer the NRB or RNRB in this way and any unused amount is lost. As the RNRB is only available where the main residence passes to direct descendants (i.e. children or grandchildren), this also means it would not be available if the main residence passes to your partner on death. This could mean IHT is due on the first death, and assets may need to be sold to meet the IHT liability within 6 months of death.

4 - Planning ahead

Using a NRB discretionary trust in your will is one possible solution. Using this structure, the first partner to die leaves the amount of the NRB (£325,000) to a trust. The potential beneficiaries of the trust would usually include the surviving partner. On the death of the surviving partner, the trust assets would not be added to their estate for IHT purposes. Structuring the will in this way means it is possible to benefit from two NRBs (totalling £650,000). Through careful planning, it may be possible to benefit from the RNRB here too.

We recommend keeping your will under review and ensuring you have an up to date will in place. By providing for your cohabitant in your will, you are giving both of you peace of mind that your affairs are in order and that they will be well provided for when the time comes.


Iona Clark

Trainee, Brodies LLP