Financial News

Tax and State Pension Rules Penalise Unmarried Couples

Couples that live together rather marrying can seriously damage their wealth, says a new report.

Although the fastest growing group of friends with benefits are the retired, they could be missing out on some valuable tax breaks because of their relationship.

One in 10 adults cohabit rather than marry, according to official statistics, which revealed the proportion jumped from 7.5% of the population in 2002 to 10% in 2015.

During the same period, the number of unmarried over 65s living together tripled.

According to analysis by financial firm Royal London, around 150,000 unmarried couples with partners aged over 65 years old live together.

Choosing not to marry

Most have married in the past, but are now widowed or divorced and choose not to remarry.

Although more people opt to live together rather than marry, Royal London argues tax and social security systems assume people will marry.

Helen Morrissey, a personal finance specialist at Royal London said: “With each passing year more and more people are choosing to live together as couples, and it is amongst those over pension age where the growth has been the most dramatic.

“Individuals need to be aware that there are many tax breaks and state pension advantages which apply only to married couples.   The family of a cohabiting couple could face an extra £70,000 inheritance tax bill compared with the heirs of a married couple.

“Similarly, cohabiting couples are excluded from income tax breaks worth hundreds of pounds a year and from the rights to inherit a state pension when one partner dies.

Financial disadvantages

“We hope that this research will help those who are living together as couples to gain a better understanding of their financial position.   But we also want the government to review whether the tax and benefit system needs to be updated to reflect the world in which we now live not the 1940s”

The report reveals unmarried couples face financial disadvantages in three main areas – inheritance tax, income tax and claiming the state pension.

In each case, tax incentives give married couples a financial advantage over an unmarried couple living together.

For example, unmarried couples cannot pass part of their state pension to a partner on death and have less tax planning options than married couples when passing on wealth.

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