Unmarried couples: the £200k inheritance tax mistake
If you’re living with a partner but not married, you could be accidentally costing your children £200,000 or more in inheritance tax. Personal finance expert Martin Lewis has warned that cohabiting couples miss out on major tax breaks that married couples and civil partners get automatically.
The difference comes down to two powerful inheritance tax allowances that only apply if you’re legally married or in a civil partnership.
How the tax break works
Right now, you can pass on £325,000 to your children without them paying any inheritance tax. If your main home goes to your direct descendants (children or grandchildren), that rises to £500,000. Crucially, when you’re married, any allowance you don’t use gets passed to your spouse when you die. This means a married couple can pass on up to £1 million without any inheritance tax bill.
The real-world impact
Martin Lewis explained this with a concrete example. Imagine an unmarried couple with £1 million in assets, including a property. When the first partner dies, if everything goes to the survivor, their unused allowance is lost. The surviving partner now owns £1 million but only has their own £500,000 allowance left. When they pass assets to their children, anything above £500,000 gets taxed at 40 per cent — a potential £200,000 tax bill.
A married couple with the same assets would pay nothing, because both allowances combine and pass down to their children.
What you should do
If you’re cohabiting and have built up significant assets together, getting married or entering a civil partnership could genuinely save your family tens of thousands of pounds. A civil partnership has exactly the same inheritance tax benefits as marriage, so choose whichever suits you.
If marriage isn’t for you right now, speak to a solicitor about making a will that maximises what you can pass on without triggering a tax bill. Don’t assume living together gives you the same legal protections — it doesn’t.
For more detailed inheritance tax planning, visit the Money Helper website or speak to a financial adviser.