Q: I have been cohabiting with my long-term partner for decades, but I’ve heard that could put us at a disadvantage when it comes to Inheritance Tax compared to couples who are married. Is this true?

A: Unfortunately, that is true. Married couples and civil partners get what is known as ‘Spousal Relief’. This exemption means that when one partner dies, their entire estate can be left to the surviving partner without incurring any inheritance tax (IHT). Their personal nil-rate band (of £325k) also gets transferred, meaning when the surviving partner passes away, they can pass on £650k’s worth of assets free of IHT.

If a primary residence is involved, the £175k residence nil-rate band also gets transferred, meaning the surviving partner will have an allowance of £350k if they pass the property onto direct descendants on their death.

Cohabiting partners are unable to benefit from this pooling of allowances, so there will likely be a larger IHT bill to pay when passing on assets upon their death.