While many people believe cohabiting couples have the same rights as those who are legally married, there are real advantages to a marriage or civil partnership.

The obvious advantage is the marriage allowance, introduced in 2015. A low earning spouse (below £11,850) can transfer up to £1,190 of their personal allowance to their spouse. This could save up to £238 in tax this year.

However, far more potentially valuable are ‘inter-spousal transfers’. This means that couples can transfer assets between each other without any tax implications. This can be used to maximise the use of annual allowances.

Ian Dyall, head of estate planning at Tilney, said: “Used efficiently, it can mean couples transfer cash or investments to whichever partner is exposed to lower rates of tax.  Such transfers are easy to effect and rarely involve any cost and can be used to maximise the use of individual allowances, such as the personal savings allowance on cash interest payments, the annual dividend allowance and the capital gains allowance.”

“Ordinarily an individual selling an asset for a profit can realise up to £11,700 in gains this tax year before incurring a capital gains tax liability. Before the sale however, a married person could transfer some of their assets to a spouse or civil partner – with no liability to tax – in order to utilise the extent of their combined Capital Gains Tax allowance (2 x £11,700) or indeed they could transfer the assets in full to the spouse/civil partner to incur the lowest Capital Gains Tax charge. Either way, by splitting assets first, the couple could potentially save thousands in tax.  This option is not available to unmarried couples.

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Inheritance benefits

There are also significant advantages on inheritance. For non-married couples, assets valued above £325,000 inherited on death may be subject to Inheritance Tax of 40% on the excess. In contrast, a deceased spouse / civil partner can pass an estate of any worth to the surviving spouse without immediate tax consequences. Dyall pointed to the case of comedian Ken Dodd who married his partner of 40-years two days before his death last year, resulting in an £11 million tax saving.

He added: “Co-habiting couples and friends sharing a house would be liable to inheritance tax on assets above their nil rate band on their death, which may cause significant problems for the surviving cohabiter, as they may need to sell the property to pay the tax.”

“Any unused Inheritance Tax nil rate band by the deceased can be passed to their beloved spouse for their use in the future; creating a potential nil rate band of £650,000 for the survivor. This has improved further from 6th April 2017 when the Residence Nil Rate Band (RNRB) was introduced and a couple is now able to potentially claim a further £250,000, resulting in £900,000 combined.” The RNRB is set to increase over the next few years. Married couples can also pass on Isas after death, an allowance not available to cohabitees.

Pensions

Dyall said the dependant’s pension within occupational pension schemes is often overlooked: “On death of a pension member, the scheme will often provide a ‘spouse’s pension’ typically equating to around 50% of the originally quoted income for the deceased. The term of ‘spouse’ however, is often strictly adhered to, and unless the couple in question were married at the point of death, the surviving partner may not receive anything, potentially resulting in thousands of pounds of income being lost.”

“One thing is for certain, if marriage / a civil partnership remains off the cards, adequate planning needs to be carried out to protect legacies and provide for the surviving partner in the event of death. For example, if there is no will in place at the point of death, the rules of intestacy do not provide for partners in any way whatsoever; it is therefore an absolute necessity that an up to date will is put in place.” 

Civil partnerships for opposite sex couples are due to be introduced later this year.