Key considerations for cohabiting couples
We regularly advise cohabiting couples on their legal affairs to ensure they are aware of their rights and obligations in relation to tax and property as these differ to those for married couples. If you are living with your partner and considering doing so, please refer to the following guide to the legal considerations.
The importance of having a Will
Key benefits of preparing a Will
- protect young or vulnerable beneficiaries
- appoint guardians to look after your children under 16
- protect a family business
- protect assets from care home fees if the survivor requires care
- secure assets for the next generation
- deal with complicated family matters
- minimise potential Inheritance Tax liabilities
We can also provide guidance around second marriages and modern family structures as well as specialist expertise to those with rural businesses e.g. farms who may have broader considerations around succession and the continuation of the family business. We can also advise on how and when to update your existing Will.
What rights do family members and cohabitants have?
Here in Scotland, your spouse or children have automatic rights to inherit from you, even with a valid Will in place stating otherwise. Spouses/civil partners, children and their descendants have “Legal Rights” to make a claim on your “moveable” estate. This includes things like money, shares, vehicles, jewellery etc but normally excludes land and buildings. This is very different from the position in England.
Legal Rights don’t include cohabitants (couples living together but who aren’t legally married or in a Civil Partnership) as they have limited rights to claim on a deceased partner’s estate.
However, the process of dealing with “Legal Rights” need not be complicated and we can guide you through your options and the executry process.
If you are buying a property, you will have to pay Land and Buildings Transactions Tax (LBTT). The amount of tax is based on the price you pay for the property. Depending on your personal circumstances, you may also have to pay the Additional Dwellings Supplement (ADS). This is aimed primarily at purchasers who already own residential property. However, the rules are complex and catch a wide range of situations and you may need some help in understanding whether they apply to you. We will provide you with information explaining the rules. If your situation is unusually complicated we can put you in touch with our Tax Team.
If you are selling a property, you may be required to pay and report Capital Gains Tax (CGT). This will depend on your own personal circumstances so we cannot include an estimate of the tax liability. However, we will provide you with a guide to the CGT rules so that you understand your obligations. If you would like assistance in calculating your CGT and reporting it to HMRC, we can put you in touch with our Tax Team.
It is important to be aware of how a civil partnership can affect an individuals tax position. A key example is Inheritance Tax, which is levied at 40% of the value of assets transferred on death, after deducting allowances. The effect of the current allowances is that many estates do not pay Inheritance Tax. However, the combination of a strong property market and frozen allowances means an increasing number of estates find themselves within the scope of Inheritance Tax.
The basic Inheritance Tax allowances available are:
- A Nil Rate Band allowance to transfer £325,000 of value to heirs free from IHT.
- A Residential allowance of £175,000 may be available where a home is closely inherited (defined in the legislation).
- A spousal exemption allows a tax-free transfer of assets to a surviving spouse or civil partner.
- Any allowances unused on first death are transferred to a surviving spouse or civil partner.
The Capital Gains Tax (CGT) rules have a similar allowance for those who are married or in a civil partnership. Broadly speaking, spouses or civil partners who are living together can transfer assets between themselves free from CGT charges. However, where they are not married or in a civil partnership, the donor may be treated as if they have sold the asset at market value on the gift to their partner. If the asset has increased in value since they acquired it, a CGT charge may be levied.
Whether you have plans to get married or enter a civil partnership or you are separating, it is worth reviewing your tax position in relation to any shared or individual assets and ensure you seek the right professional advice to inform your decisions.
A Co-purchase Agreement is a legal document that is signed by two people who are buying a property together. They are particularly popular amongst buyers who are contributing different amounts towards the purchase. Without an agreement, there is no guarantee that person who contributes more will be able to reclaim that money back. A Co-purchase Agreement can record in writing how the purchase is being funded and what the arrangements are to be in relation to that property if you no longer wish to co-own it or, in the case of a couple, in the event that you separate. For example if the property is to be sold, it can set out how the sale proceeds will be divided between you. It can also provide for the transfer of one party’s share of the property to the other, giving more ﬂexibility and avoiding the property being sold if one party can afford to buy the other out. Having an agreement in place sets out what is to happen will help avoid any misunderstanding proceedings. about what is to happen in the future and reduce the risk of costly court proceedings.
Legal consequences of moving in together
Contrary to popular belief, common law marriage does not exist in Scotland. However, unmarried couples do have the right to make certain claims if the relationship breaks down or one partner dies. If you are moving in together as a couple, you should also consider how the wider ﬁnances are to be dealt with if you separate, including inheritance, the arrangements for any children and the option of discharging your right to claim against each other. A bespoke Cohabitation Agreement can give you certainty on these important issues.
After the death of a loved one an up-to-date Will provides some comfort to the family in what is a difficult time.
If you would like more information on any of the matters raised above, please get in touch.