The father had just died. He and his partner of 25 years had built a life, a business, and owned a home outright worth £750,000. They were not married. His partner now faced an Inheritance Tax bill of £170,000.
She did not have the cash. The money was in the house. She was facing the sale of her home of two decades to settle a bill from HMRC. Her partner would never have wanted that. But his intentions died with him. This is not an unusual story.
The £325,000 Cliff Edge
The tax system is binary. You are either married or in a civil partnership, or you are not. There is no special status for long-term cohabiting partners. For married couples, any assets left to the surviving spouse are completely free of Inheritance Tax. They can also combine their allowances, potentially passing on up to £1 million tax-free.
For an unmarried couple, none of this applies. When one partner dies, the other is treated as a stranger in the eyes of the taxman. The deceased’s estate has a standard tax-free allowance of £325,000. Anything above that is taxed at 40%. In the case I sat on, the estate was £750,000. The tax was due on the £425,000 difference. That is how we arrived at a £170,000 liability.
Planning is Not Optional
The fundamental error was assuming their relationship status gave them legal protection. It did not. Structurally, nothing was in place. No will. No trust. No life assurance policy written to cover the inevitable tax bill.
A will would have ensured the partner inherited, but it would not have erased the tax. For unmarried couples, estate planning is a necessity, not a choice. It involves using specific instruments. Life assurance policies written into trust can provide a tax-free lump sum to pay the bill. Owning property as ‘tenants in common’ allows each partner to direct their share via a will, which can be part of a wider trust arrangement.
These are not complex manoeuvres. They are standard procedures to prevent a predictable disaster. The conversation is straightforward. The consequences of avoiding it are not.
If you own property with a partner to whom you are not married, we should talk.
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Written by Sean Kiani, Estate Planner at Inheritance Made Simple. Sean writes and reviews the firm's guidance on estate planning, wills, trusts and inheritance tax, and works with families across Bournemouth, Poole, Dorset and Central London. Verify Sean's Society of Will Writers membership listing.