Setting up home together – the financial side of cohabitation

Marriage may not be on the way out, but for both mixed and single sex couples cohabiting has become a lifestyle choice.  There are more than six million cohabiting couples in the UK. Many have no intention of formalising their relationship.

But what are the financial implications?

It’s not the same as being married…

Many people believe that where a couple live together there exists a ‘common law marriage’ even though they are not actually married. This is not true. Cohabitees do not have the same rights in law as a married couple. So those who prefer to cohabit will need to make the arrangements themselves.

Put it in writing

A cohabitation agreement sets out exactly what assets each partner is bringing to the relationship.  It can clarify who takes responsibility for bills and whether you will have joint credit cards and bank accounts. It can also cover day-to-day matters, such as the way the household is run.

It can also set out how your property, contents, personal belongings and savings should be divided in the event of the relationship breaking down. This can be especially important if the property is owned by one partner.

Your home

if both of you are named on the mortgage or tenancy agreement, both of you will be liable for the payments. If the agreement is only in one of your names, the other person has limited housing rights if your relationship breaks down.

If you’re taking on a mortgage together, you might want to think about whether you want to be tenants in common or joint tenants.  If you’re a joint tenant, the share automatically passes to your partner if you die. Being a tenant in common means that you can pass on your share in the property to whoever you want.

Start planning your pension

Unlike married couples, unmarried couples who live together are not entitled to receive the state pension or bereavement allowance for deceased partners.

In addition, there may be complications in some pension schemes paying out to unmarried partners in the event of death. While most schemes routinely deal with married couples, they will not necessarily recognise cohabitees.

You need wills

If you are cohabiting, it is essential you have a valid will in place. Despite recent changes to the rules of intestacy, cohabitees do not automatically have rights to their partner’s estate if they die without leaving a will, adding financial hardship to the misery of bereavement. Both of you need to draw up a document setting out what you want to happen once one of you is  no longer around.

Beware of tax

Married couples and same-sex couples in a civil partnership enjoy some limited tax advantages over cohabiting couples, so you need to be aware of these if you do not intend to tie the knot.

Married couples can transfer ownership of assets between themselves with no tax liability which can help cut tax bills, and also pass assets to each other free from inheritance tax (IHT).

There may be solutions which can help cohabiting partners avoid this apparently unequal treatment, but you will need to arrange them in plenty of time. Getting expert advice is essential.

Setting up home together can mean a whole range of financial questions, and it is important to get expert advice on them all. At Continuum we can help. You can see more about our services in our downloadable brochure.

The value of investments can fall as well as rise and you may get back less than you invested.

Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.

The Financial Conduct Authority do not regulate taxation advice, including inheritance tax and will writing.