UK Tax Differences: Marriage vs Civil Partnership vs Cohabiting 2026/27

The UK tax system treats married couples and civil partners as a single financial unit for many purposes, providing benefits that cohabiting couples -- no matter how long they have lived together -- simply do not have access to. In 2026/27, these advantages include the Marriage Allowance, CGT spousal transfers, IHT unlimited exemption and pension death benefit planning.

This guide compares the three living arrangements from a UK tax perspective and sets out what steps couples should take to make use of the available reliefs.

The Marriage Allowance: £252 Per Year

The Marriage Allowance allows one spouse or civil partner to transfer £1,260 of their unused Personal Allowance to their partner. In 2026/27:

• Personal Allowance: £12,570
• Transferable amount: £1,260 (10% of PA)
• Tax saving: £252 (£1,260 x 20% basic rate)

Who can claim:

• The transferring partner must have income below £12,570 (not using their full PA)
• The receiving partner must be a basic rate taxpayer (income £12,571 to £50,270)
• Both must be married or in a civil partnership

Who cannot claim:

• Cohabiting couples
• Couples where the higher-earning partner pays 40% or 45% tax
• Couples where both partners have income above £12,570

The claim is made online at gov.uk and backdating is available for up to 4 tax years. For a couple who has qualified but not claimed for 4 years, a backdated claim could recover £1,008.

CGT: The No Gain/No Loss Rule

For married couples and civil partners, transfers of assets between them are at no gain/no loss for CGT. This means:

1. No CGT arises at the point of transfer, regardless of the market value of the asset
2. The receiving spouse takes the asset at the original cost basis (the transferor's base cost)
3. CGT only crystallises when the receiving spouse eventually sells the asset

This has several powerful applications:

Using both CGT Annual Exempt Amounts (AEA)

Each spouse has a £3,000 AEA in 2026/27. By transferring half a shareholding to a spouse before selling, both AEAs are applied: £6,000 total exemption instead of £3,000.

Shifting gains to the lower-rate taxpayer

If one spouse is a basic rate taxpayer and the other pays 40%, transferring an asset before disposal means the gain is taxed at 18% rather than 24% -- a saving of 6 percentage points on every pound of gain above the AEA.

Contrast with cohabiting couples

A transfer between cohabiting partners is treated as a sale at market value for CGT. If you give your partner shares worth £30,000 that you bought for £10,000, you are treated as having made a £20,000 gain. CGT is due immediately, even though no money changed hands.

Inheritance Tax: The Unlimited Spousal Exemption

This is the most financially significant tax benefit of marriage for those with meaningful assets:

Married/civil partner:

• Transfers to a spouse or civil partner are completely exempt from IHT -- unlimited value, no cap
• If you die with a £2m estate and leave everything to your spouse, no IHT is due
• The unused portion of the deceased's Nil Rate Band (£325,000) is transferable to the surviving spouse on their death
• Combined NRB for survivor: up to £650,000 (or up to £1m including Residence Nil Rate Band)

Cohabiting:

• No spousal exemption
• Legacy to a cohabiting partner is treated as a gift to a stranger for IHT -- 40% above the NRB
• A cohabiting partner with a £500,000 estate leaving everything to their partner: £175,000 IHT bill (40% on £500,000 - £325,000 NRB)

The difference on a mid-sized estate can be hundreds of thousands of pounds. This is often the strongest financial argument for marriage or civil partnership where couples have built up significant joint wealth.

Pension Death Benefits

Pensions sit outside the estate for IHT (until April 2027 when unspent DC pensions will be included within the estate under planned rules). For spouse beneficiaries:

Defined contribution pensions:

• On death before 75: remaining pot can be paid to a surviving spouse tax-free
• On death at 75 or over: surviving spouse pays income tax at their marginal rate on withdrawals

For a cohabiting partner to receive a pension death benefit, they must be nominated on a nomination of beneficiary (Expression of Wishes) form. Trustees are not legally bound to follow nominations, but typically do if the nomination is in place and documented. Married spouses have no stronger legal right in law, but carry the conventional weight of being the legally recognised partner.

Defined benefit pensions:

• Scheme rules vary but most provide a dependant's pension to a surviving spouse
• Cohabiting partners may qualify as financial dependants if they can demonstrate this to scheme trustees, but eligibility is not guaranteed

Working Tax Credit and Universal Credit

Couples -- whether married, in a civil partnership, or cohabiting -- are assessed jointly for means-tested benefits including Universal Credit. In this respect, marriage makes no difference. The couple's combined income and capital are assessed, and thresholds apply to the couple as a unit.

For Working Tax Credit (now largely replaced by UC but still applicable in some cases), the couple's joint income determines eligibility. Marriage confers no advantage or disadvantage for UC purposes.

The Cohabiting Gap: Legal and Financial Risks

From a legal perspective, the risks of cohabiting without addressing property ownership are significant:

• Property: Unless a property is held as joint tenants with right of survivorship, a cohabiting partner who is not on the mortgage or title has no automatic claim on the family home if the relationship ends or the other partner dies.
• Intestacy: If a cohabiting partner dies without a will, the surviving partner inherits nothing under the rules of intestacy in England and Wales. A formal claim under the Inheritance (Provision for Family and Dependants) Act 1975 may be possible but is costly and uncertain.
• Pension: See above -- nominations are important but not guaranteed.

The immediate practical steps for cohabiting couples are: make wills, consider a cohabitation agreement, and consider joint ownership (or a declaration of trust) for shared property.

Practical Checklist for Newlyweds

Once you marry or register a civil partnership, these tax steps should be completed promptly:

1. Update HMRC of your change in status via your Personal Tax Account (gov.uk)
2. Apply for Marriage Allowance if one partner earns below £12,570 and the other is a basic rate taxpayer
3. Review pension nominations and update to name your spouse -- contact each pension provider separately as there is no central register
4. Make or update wills -- marriage revokes an existing will in England and Wales
5. Review investment portfolios to consider whether transferring assets between you would use both CGT AEAs efficiently
6. Review life insurance -- write policies in trust or ensure your spouse is named beneficiary so proceeds pass quickly and outside probate
7. Check title to property -- ensure it is held as joint tenants if you want automatic survivorship, or tenants in common if you want to direct your share by will

Use our Marriage Allowance calculator and IHT calculator at calchub.uk to estimate the value of marriage-related tax benefits in your specific situation.