Cohabiting Couples and Inheritance Tax: No Spouse Exemption 2026/27

The core problem

Marriage and civil partnership carry a powerful Inheritance Tax benefit that many cohabiting couples do not realise they are missing: the unlimited spouse and civil partner exemption. Assets left to a spouse or registered civil partner, however large, pass completely free of Inheritance Tax and free of Capital Gains Tax at the point of transfer.

Cohabiting couples — however long they have lived together, however many children they have together, and regardless of how "married" the relationship looks in every other respect — are treated by HMRC as legally unrelated individuals for Inheritance Tax purposes. There is no length-of-relationship test that grants spousal treatment; the exemption is based purely on legal marital or civil partnership status.

What this means in practice

If one partner in a long-term cohabiting relationship dies and leaves their estate (or their share of a jointly owned home) to their surviving partner, that transfer is assessed for Inheritance Tax in exactly the same way as a gift to a friend, sibling, or unrelated party:

• The first £325,000 (the standard nil rate band) can pass tax-free, as it would to anyone.
• Anything above that is taxed at 40%, unless another relief or exemption applies.

Worked example: Aisha and Ben have lived together for 22 years and have two children together, but never married. Ben dies, leaving his half-share of their jointly owned home (worth £450,000) and other assets to Aisha. Because they are not married or civil partners, no spouse exemption applies. Assuming Ben's full nil rate band of £325,000 is available and no other reliefs apply, £125,000 of the transfer is taxed at 40%, creating a £50,000 Inheritance Tax bill — a bill that would have been zero had they been married.

Why the residence nil rate band rarely helps here

The residence nil rate band (an additional £175,000 allowance in 2026/27) applies when a qualifying residence passes to direct descendants — children, grandchildren, and some others in the direct line — not to a cohabiting partner. A surviving cohabiting partner generally cannot use this allowance in respect of assets left to them, unless they happen to also independently qualify as a direct descendant of the deceased (rare in a partner relationship). This further widens the tax gap between married and cohabiting couples when it comes to passing on the family home.

The intestacy trap

Perhaps the most urgent risk for cohabiting couples is not Inheritance Tax at all, but intestacy. If someone dies without a valid will, the intestacy rules set out a strict order of who inherits — and a cohabiting partner, however long-term, is not included anywhere in that order in England and Wales. Everything could pass to children, parents, or other relatives, potentially leaving a surviving partner with no automatic entitlement to the home they lived in or shared finances, unless they can bring a successful claim under the Inheritance (Provision for Family and Dependants) Act 1975 — a costly and uncertain route compared with simply having a will in place.

Practical steps for cohabiting couples

• Make wills — mirror wills leaving assets to each other are the single most important step, since intestacy rules offer no protection at all.
• Consider life insurance written in trust specifically to cover any Inheritance Tax liability that would arise on the first death, so the surviving partner is not forced to sell the home to pay the bill.
• Review property ownership structure — how a jointly owned home is held (joint tenants versus tenants in common) affects what happens to each partner's share on death.
• Take professional advice on trusts if the estate is large enough that even careful will drafting and the available nil rate bands will not be enough to avoid a significant tax bill.
• Consider marriage or civil partnership itself as a straightforward way to access the full spouse exemption, if that step is otherwise being contemplated.