You might have seen the news that Kirstie Allsopp, of Location, Location, Location fame, married her long-term partner, Ben Andersen, after 22 years together. This follows another famously unmarried couple, Richard Curtis and Emma Freud, who were together for 33 years before getting married in 2023. Why bother after so much time, you may think. Or perhaps what is the difference when a couple has lived together, raised a family and for all intents and purposes, acted as a married couple for decades?
Well, the difference in status between a married couple and a cohabitating couple is significant when it comes to tax and succession.
Intestate position
Under the laws of intestacy (i.e. where someone dies without a will in place), the surviving cohabitant can make an application to court under section 29 of the Family Law (Scotland) Act 2006. The court then has discretion as to whether the surviving cohabitant will receive a share of their deceased partner's estate and, if so, the quantum. Section 29 outlines the factors the court should consider in determining what order to make, including: the size and nature of the deceased’s net intestate estate; any benefit to be received by the cohabitant as a consequence of the deceased’s death (for example, any life policy or death in service sums which would not normally form part of the deceased’s estate); the nature and extent of any other rights or claims against the deceased’s estate; and any other matter the court considers appropriate. The court therefore has a wide discretion in these matters with each case being decided on its individual facts and circumstances. Case law is limited, and it is therefore difficult to say with any certainty what order a court might make in any individual case. Theoretically, the surviving cohabitant could be entitled to as much as a spouse under the laws of intestacy, but this is unusual. Moreover, any claim must be raised within 6 months of the date of death (although this will increase to 12 months once the provisions of section 78 of the new Trusts and Succession (Scotland) Act 2024 are brought into force). Any cohabitant looking to claim must therefore act very quickly and be ready to fund the costs of a court application and the associated legal advice.
The position of a spouse or civil partner on intestacy is very different.
Where the deceased is not survived by any children, the surviving spouse / civil partner has an entitlement to inherit the entire estate.
Where the deceased is survived by children, the intestacy rules provide for the estate to be divided into three parts, namely (1) "prior rights" of the surviving spouse or civil partner, (2) legal rights, and (3) the "free estate". Prior rights provide the survivor with three rights. Firstly, the survivor is entitled to a housing right up to a maximum value of £473,000. The survivor must be ordinarily resident in the property at the time of the death. If the value of the property is less than £473,000, the value of this right is capped at the value of the property. Secondly, the survivor is entitled to household contents, up to a maximum value of £29,000. Again, if the value of the household contents is less, the value of this right is capped at the value of the household contents. Finally, the survivor is entitled to a cash right of up to £50,000.
Legal rights, which apply on intestacy as well as when a person leaves a will, provide for the surviving spouse or civil partner and children to receive a fixed share of the moveable estate. This includes all assets, except land and buildings. The share depends on who survives the deceased (see further below)
The remainder of the estate after satisfying (1) and (2) i.e. the free estate, then passes to the children of the deceased (if the deceased is survived by children).
Testate position
Where a cohabitant dies leaving a will, their surviving cohabitant is unable to make a section 29 claim – having a will removes this option. It is therefore essential that cohabitants consider very carefully if the wills they have in place are reflective of their current wishes. Cohabiting couples are free to leave their estate to anyone they wish - even to the exclusion of their cohabitant – if they have a will in place.
Spouses or civil partners on their other hand are entitled to claim legal rights in their deceased spouse or civil partner's estate. Legal rights are fixed rights which entitle the surviving spouse or civil partner to a share of the moveable estate (ie. all assets excluding land and buildings), regardless of the terms of the deceased's will. This right is limited to one third of the net moveable estate (if the deceased is survived by children) or one half of the net moveable estate (if the deceased is not survived by any children). The value of this entitlement may be negligible for those with no substantial assets outside of their heritable assets (i.e. land or buildings) but where there is a lot of value in bank accounts, investments or even shares in a business the value of the legal rights entitlement can be substantial. If spouses / civil partners choose to accept their legal rights entitlement they cannot also accept any provision made for them under the deceased's will i.e. it is a choice of one or the other.
Inheritance Tax
Whilst not particularly romantic, it is not uncommon for long term couples to marry or become civil partners with a view to minimising their inheritance tax liability on their estate. Inheritance tax is a tax charged (broadly) on someone's estate when they die. However, much like the position for capital gains tax during life, transfers between spouses or civil partners in life and on death are exempt for inheritance tax purposes.
This is not the case for cohabitants. This means that where a cohabiting couple wish to leave assets to the survivor of them on death, there may be tax of 40% to pay on the value of the assets in excess of the available nil rate band (currently a maximum of £325,000) within 6 months of death. If the deceased made any gifts within 7 years of death their nil rate band would reduce by the value of the gifts.
Finally, cohabitants would be wise to also consider other issues including occupancy rights in their home and the preparation of a cohabitation agreement.
For more information on tax and succession for cohabiting couples, please get in touch with a member of our personal law team.
Contributor
Senior Solicitor
