Inheritance Tax for Cohabiting Couples UK (2026): The IHT Problem Explained

No — unmarried cohabiting couples receive none of the major IHT advantages that married couples and civil partners enjoy. There is no spousal exemption: when one partner dies and leaves assets to the other, the transfer is a potentially exempt transfer (PET) or a chargeable transfer, not an automatically exempt one. There is no transferable nil-rate band: each partner has only their own individual £325,000 nil-rate band. There is no transferable residence nil-rate band. The IHT treatment of unmarried couples is identical to that of strangers — a gift at death above the nil-rate band is taxed at 40% with no special relief. This disparity affects an estimated 3–4 million cohabiting couples in England and Wales and is one of the strongest financial arguments for either marriage or active IHT planning.

A concrete example: Partner A and Partner B are unmarried and own a home worth £500,000 (held 50:50 as tenants in common). Partner A dies, leaving their £250,000 share to Partner B. Partner A has no other significant assets and has made no prior gifts. Partner A's nil-rate band is £325,000 — so no IHT is payable on the £250,000 share. But if Partner A's estate was larger — say, £250,000 in savings plus the £250,000 property share (total £500,000) — the taxable estate exceeds the £325,000 NRB by £175,000, and IHT of £70,000 (40% × £175,000) becomes payable before Partner B inherits. A married couple in identical circumstances would pay no IHT at all due to the spousal exemption. The residence nil-rate band (up to £175,000) is not available to Partner B on inheriting from an unmarried partner — the RNRB requires the property to pass to a direct descendant.

Each partner in an unmarried couple has their own individual nil-rate band of £325,000 (frozen at this level until April 2030). There is no mechanism for an unmarried couple to combine or transfer their nil-rate bands. When Partner A dies, up to £325,000 of their estate passes free of IHT; everything above is taxed at 40%. Partner B cannot claim any unused portion of Partner A's NRB. By contrast, a married couple can claim a combined effective NRB of up to £650,000 (plus up to £350,000 in RNRB for direct descendants) on the second death. The difference in IHT treatment between a married and an unmarried couple with identical assets can easily run to hundreds of thousands of pounds on a property-rich estate.

Several practical steps reduce but do not eliminate the IHT gap: (1) Life insurance in trust — a term or whole-of-life policy written in trust for the surviving partner pays out directly on death, free of IHT, without going through the estate. This can be used to cover the anticipated IHT liability. (2) Wills — an unmarried partner has no automatic inheritance rights; a will is essential to pass assets to the partner at all. (3) Annual gifting — each partner can give £3,000 per year to the other (or to anyone else) free of IHT, with one year's carry-forward. For assets that will be PETs on death, starting the seven-year clock early reduces liability. (4) Normal expenditure out of income — regular gifts from surplus income are immediately IHT-exempt. (5) Property holding — for a property owned together, consider whether tenants in common (each partner directing their share by will) or joint tenants (survivorship) best fits your intentions and IHT strategy. (6) Consider marriage or civil partnership — if appropriate for the relationship, this unlocks the full spousal exemption, TNRB, and TRNRB.

IHT on death is primarily a liability of the estate, not the beneficiary personally (with some exceptions — see below). In practice: (1) The executor pays IHT from estate assets before distributing the estate. (2) If the estate does not have enough liquid assets (for example, the main asset is an illiquid property), the executor may need to use the HMRC instalment option (paying IHT on real property in 10 annual instalments) or arrange a bridging loan. (3) If the surviving partner is left property subject to IHT, they inherit it net of any IHT already paid from estate funds — or they must fund any shortfall. (4) A life insurance policy written in trust for the surviving partner is paid directly to them outside the estate and can be used to fund the IHT bill before probate completes.

No — without a will, an unmarried partner inherits nothing under the intestacy rules. There is no common-law marriage in English law. An unmarried partner does not appear anywhere in the statutory intestacy order. The estate passes in the statutory order: children first, then parents, then siblings, then more distant relatives, and ultimately the Crown (bona vacantia) if no qualifying relative survives. A cohabiting partner who was financially dependent on the deceased may be able to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 for reasonable maintenance provision, but this requires a court application, is uncertain in outcome, and takes time. Making a will is not optional for cohabiting couples who want their partner to inherit — it is essential.

Yes — a deed of variation (also called a deed of family arrangement) can be used after a death to redirect how the estate is distributed, and can create IHT savings if done correctly. For example, if the deceased died without a will and the estate passed to adult children under intestacy, the children could execute a deed of variation to redirect all or part of their inheritance to the surviving partner. For the deed to have IHT effect, it must be made within two years of the death, in writing, and must not involve any consideration passing from the beneficiary being varied. However, a deed of variation can only redistribute assets that have already been inherited — it cannot override the liability that has already crystallised on the estate. Post-death planning is a poor substitute for a well-drafted will and lifetime IHT planning.