UK: For Better, For Worse? Pensions, Inheritance Rights And Tax

Last Updated: 14 November 2011
Article by Claire Carberry and Charmaine Wilson

Our team focuses on the key legal and financial position of couples who do not enter into marriage or civil partnerships, and discusses whether you have fewer rights if you're living together.

Contrary to popular belief there is no such thing as a 'common law' husband and wife. However long you have been together, an unmarried couple receive hardly any rights compared with married couples or civil partners in the eyes of the law. As around 4 million people in UK today are choosing to live together, sharing homes and in many cases raising children together as a family, it is important to be aware of the areas where the law differs.

Unfortunately, it is often the case that a large number of couples only find out about their lack of legal standing when it is too late – often when their relationship has come to an end. It is therefore important to take measures to protect yourself and your partner in key areas including pensions, co-habitation agreements and rights on death or mental incapacity.

To read the second half of this article – covering topics including issues for Property Owners and Occupiers , Relationship Breakdown and Non- Financial Matters, please click here.


Whether or not you can benefit from a scheme to which your partner belongs will depend on the scheme. Most schemes offer benefits to spouses and to dependent children and some will offer benefits to a dependent partner.

It is important to note that, if your pension scheme offers benefits to opposite sex partners, it should also offer benefits to a partner in a same sex relationship. It is against the law for an occupational pension scheme (and for some private pension schemes) to discriminate against same-sex couples.

If you are not married or in a civil partnership, it is possible to set up a personal pension to provide benefits to your other half, but you may need to make a large contribution to the pension fund. It is also worth bearing in mind that, if you are together, but not married or in a civil partnership, you are not able to claim a state retirement pension based on your partners' national insurance contributions.

If your marriage or civil partnership is brought to an end in court, you are entitled to a share of your ex-spouse or ex-partner's occupational or private pension. If you die, your surviving spouse/civil partner may also be entitled to a share of your occupational or private pension. Such protection is not offered to co-habitees.

Top Tips

  • Check your pension scheme – make sure you read through the details of your pension scheme. Some will not pay survivor's benefits to partners of people who are not married or in a civil partnership. If your pension scheme does recognise your partner then check the period of cohabitation required as there is no prescribed statutory period
  • Plan ahead – Think carefully about how you can build up separate pensions for both of you to maximise your finances in later life

Inheritance rights

If you are married and die without making a Will, your spouse/civil partner will usually inherit all or some of the estate, depending on the value.

If however you are simply co-habiting and you die without a Will your partner will only inherit assets held in joint names as 'joint tenants'. It is therefore vital that you make a Will to ensure that they are provided for.

To view some of the questions our clients ask us concerning making a Will, (and the answers) please click here.

Inheritance tax

One of the key differences of either being married or in a civil partnership is that if you leave your estate to your Spouse or Civil Partner, it is exempt from inheritance tax. When they subsequently die, their estate may benefit from a double tax-free allowance, resulting in up to £650,000 passing free from inheritance tax.

If, on the other hand, you leave your estate to your partner, inheritance tax will be payable at 40% on everything above £325,000 - regardless of how long you have been together. When your partner subsequently dies, your joint estates will be subject to inheritance tax at 40% - and the tax-free allowance will normally be limited to up to £325,000.

Top Tips

  • Make a Will – even if you don't think you have that much to leave. If you do not make a Will, all your assets and property will automatically pass to your blood relations, rather than your partner
  • Review your Will - If you already have a Will, make sure you review it when any big changes occur in your life. The most common changes that affect Wills are marriage or re-marriage, divorce or separation and birth or adoption of children
  • Look into Pre-nuptial and pre-civil partnership agreements – Such agreements may be useful where one or both partners bring considerable assets to the marriage. Although such agreements are not legally binding in England and Wales, the Courts will take them into account when settling financial matters when a marriage or civil partnership comes to an end
  • Take advice – through careful planning you may be able to minimise the amount of inheritance tax payable on death

Mental Incapacity

If you lose capacity to deal with your own financial affairs your family and friends will need to apply to the Court of Protection for someone to be appointed on your behalf. It will be for that person to convince the Court that they are the best person to deal with your finances. This can result in battles – not what is required at such a stressful time. It will also be a costly process – not only as a result of Court proceedings, but also due to the ongoing supervision imposed by the Court.

If you do not have capacity, no-one can refuse or consent to medical treatment on your behalf although it is undoubtedly good practice for a medical practitioner to consult with family and friends. If you do not appoint anyone yourself, the NHS can instruct an independent mental capacity advocate to make decisions regarding serious medical treatment or the provision of accommodation on your behalf.

Top tips

  • Make a Lasting Power of Attorney – even if you are relatively young and in good health, you may unexpectedly lose capacity due to illness or accident. It makes sense to make a Lasting Power of Attorney which allows you appoint a chosen person/persons to make decisions on your behalf and to give them guidance or restrictions. Lasting Powers of Attorney can relate to financial decisions or to Health and Welfare deicisions
  • Consider making a Living Will or Advance Directive - These are less wide ranging than Lasting Powers of Attorney but can be used to set out your wishes in a clear manner

To read the second half of this article – covering topics including issues for Property Owners and Occupiers , Relationship Breakdown and Non- Financial Matters, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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