ISA and Pension Planning for Cohabiting Couples: Closing the Gap Married Couples Don't Have (2026/27)

The Core Problem: The Law Doesn't Recognise "Common Law Marriage"

Despite the popular myth, there is no such thing as "common law marriage" in England and Wales. Living together for any length of time — even decades, even with children — creates no automatic legal or tax status equivalent to marriage or civil partnership. For cohabiting couples doing financial planning, this single fact drives almost every practical decision covered below.

Three tax reliefs matter most, and unmarried couples get none of them automatically:

1. ISA Additional Permitted Subscription (APS) — available only to a surviving spouse or civil partner.
2. Capital Gains Tax inter-spouse exemption — available only to spouses and civil partners.
3. Inheritance Tax spousal exemption and transferable nil-rate band — available only to spouses and civil partners.

ISA Planning: What Happens Without an Additional Permitted Subscription

When a spouse or civil partner dies holding a Stocks & Shares or Cash ISA, the survivor receives an Additional Permitted Subscription — essentially, an extra ISA allowance equal to the value of the deceased's ISA at death, on top of their own standard £20,000 annual allowance. This lets the full value be moved into the survivor's own ISA, preserving the tax-free wrapper.

Cohabiting partners get no APS. Consider Priya and Tom, unmarried, living together for 12 years. Priya dies holding a £60,000 Stocks & Shares ISA, left to Tom in her will.

Tom inherits the £60,000, but it sits outside any ISA wrapper as ordinary savings or investments until he can rewrap it using his own annual allowance — a process that could take three tax years, during which any dividends or gains are potentially taxable.

to see how much tax-free compounding is at stake if a large ISA balance has to sit unwrapped for a year or more.

Capital Gains Tax: The Transfer Trap

Married couples can transfer shares, funds or property between themselves at any time with no Capital Gains Tax consequence — the transfer is treated as taking place at "no gain, no loss." Cohabiting couples get no such treatment. If Tom later wanted to move some jointly-intended shares from his name into Priya's sole name while she was alive (for tax-planning reasons, say to use her unused CGT allowance), that transfer would be treated as a disposal at market value.

Worked example: Tom transfers £50,000 of shares (original cost £30,000, so a £20,000 gain) to Priya while both are alive and unmarried.

This is a real, immediate cost that married couples simply never encounter, and it changes how cohabiting couples should approach joint tax planning — moving assets between partners to "use up" allowances is far less straightforward.

Inheritance Tax: No Exemption, No Transferable Nil-Rate Band

The biggest gap is Inheritance Tax. A surviving spouse or civil partner inherits an unlimited amount entirely free of Inheritance Tax, and can also inherit their late partner's unused nil-rate band (£325,000) and residence nil-rate band (£175,000, tapered away above £2 million estates) — effectively giving a surviving spouse up to £1 million combined tax-free threshold in typical cases.

An unmarried partner inheriting a £500,000 estate that includes a home could face an Inheritance Tax bill of up to 40% on the amount above the available nil-rate bands, where a spouse in the identical situation would owe nothing.

Practical Planning Steps

1. Write mirror wills. Without a will, intestacy rules give a cohabiting partner nothing. A will is the only way to direct assets — savings, ISAs, property, personal possessions — to a partner.
2. Nominate your partner on every pension. As covered in our companion piece on
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   Try the calculator

   Pension Calculator

   Estimate your pension pot at retirement and projected annual income.

   pension death benefits→
   , this sits alongside — not instead of — a will.
3. Consider life insurance written in trust to provide a lump sum outside the estate, helping cover any Inheritance Tax liability the partner would otherwise face.
4. Review joint ownership structures. Property held as "joint tenants" passes automatically to the survivor outside the will; "tenants in common" does not — get advice on which suits your situation.
5. Model the ISA rewrapping gap. If one partner holds a large ISA, understand that a surviving partner will need multiple tax years of £20,000 allowances to fully rewrap it — plan around that timing.
6. Watch the April 2027 pension IHT change. Bringing pensions into the estate for IHT purposes will affect cohabiting couples more than married couples, since there's no spousal exemption to soften the blow.

None of these tools give cohabiting couples full parity with marriage — that would require a change in the law. But a will, up-to-date pension nominations, and an awareness of the ISA and CGT transfer traps close most of the practical gap that catches unmarried couples out.