Common law marriage is the 'stuff of fairy tales

Last year’s statistics from the Office for National Statistics (ONS) revealed that over three million couples in the UK are unmarried and cohabiting, which accounts for 17 per cent of families in the UK.

Cohabiting families are the fastest-growing family type in the UK. Even though there is no such thing as a ‘common law marriage’ in UK law, over half of respondents to the British Social Attitudes Survey in 2008 thought that unmarried couples living together for some time probably or definitely had a common law marriage, giving them the same legal rights as married couples.

This could not be further from the truth.

Not only is there no such thing as a common law marriage in UK law, couples living together do not benefit from the many protections and tax exemptions afforded to married couples and those in civil partnerships, many think unfairly.

Two of the most noticeable, and potentially devastating, discrepancies occur on death. Married couples and those in civil partnerships can leave an unlimited value of assets to each other free of inheritance tax (IHT), thereby delaying any tax payable until after the second death. However, couples who cohabit are limited to the £325,000 nil rate band (NRB) and will pay 40 per cent IHT on all other assets. 

This can mean there is tax to pay on the family home after the first death and in some seen cases the home may need to be sold or mortgaged to fund the tax due, which can be very distressing for those involved. The new additional NRB for main residences (coming into force from 6 April 2017) only slightly improves this situation. Not only is the additional allowance limited in value, it is only available to those with children: the ONS 2015 data shows that 55 per cent of opposite-sex cohabiting couples and 98 per cent of same-sex cohabiting couples do not have children. 

Second, the devolution of assets under the intestacy rules (where no will is left) varies considerably between cohabiting couples and spouses or civil partners. Spouses and civil partners will receive the whole estate where there are no children or share the estate where there are. In stark contrast, cohabiting couples will receive nothing under the intestacy rules irrespective of whether any other family members survive the deceased. Couples who have lived together for most of their adult lives will be amazed at this, and if they do not do make a will to override the situation, face a terribly sad scenario when one partner dies.

Another tax benefit cohabiting couples miss out on is the ability to transfer assets between themselves on a ‘no gain, no loss’ basis for capital gains tax (CGT) purposes. Married couples and civil partners can make use of this benefit to transfer assets into the other’s name before a sale so as to use their separate annual CGT allowances, reducing or eliminating the tax payable. 

The Cohabitation Rights Bill is in the very early stages of passing through parliament. If the Bill makes it to royal assent, it will provide some protection for cohabitees in situations such as the death of their partner. However, progress is slow and even if the Bill does become law, it offers cohabiting couples only basic rights compared with those who are married or in civil partnerships.

Cohabitees, therefore, need to protect themselves. Cohabitation agreements are on the increase. Making a will to pass assets on to the survivor is crucial since the intestacy rules cannot be relied upon. Thought should also be given to property ownership: purchasing as joint tenants, rather than tenants in common, will ensure that the family home automatically passes to the survivor. Other assets, such as bank accounts, can also be ?held jointly.

But, equally as important ?as taking such steps is increasing public awareness of the fallacy ?of a common law marriage so that cohabitants do not rely ?on this myth. Even if the Cohabitation Rights Bill does ?not make it to law, or only provides minimal protection, ?it will hopefully highlight to cohabiting couples the precarious position in which many may currently, unwittingly, find themselves.

Kate Johnson is an associate at Wedlake Bell @WedlakeBell www.wedlakebell.com