Unmarried Couples and Property Ownership

There is often confusion between the rights and responsibilities afforded to married couples and Civil Partners as opposed to unmarried couples. Outside a legal union a partner has no automatic inheritance rights and any property and assets will pass, if not by will, according to the Intestacy Rules which make no provision at all for an unmarried partner. When it comes to buying and selling a property there are specific legal measures you can take to ensure you are protected if your situation should change in the future.

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Unmarried couples and buying a property

There are two options open to joint purchasers whether married or not when purchasing a property by electing to hold your property as Joint Tenants or Tenants in Common. There is a material difference in the legal consequences of which arrangement you choose and this should be addressed with care and expert advice.

If you hold the property as Joint Tenants

you have equal rights to the whole property – neither one of you has a specific “share” in the property
the property automatically goes to the other owner(s) if you die
you cannot pass on your ownership of the property in your will (unless you are the last survivor)

If you hold the property as Tenants in Common

each of you will own a specified share in the property, which may or may not be an equal share
your share of the property does not automatically pass to the other owner(s) if you die
you can pass on your share of the property in your will

Tenants in Common – What to consider?

As Tenants in Common you can dispose of your share to anyone (whether or not they are another co-owner) in your lifetime by sale, gift or even mortgage, and, on death, by will. Unlike Joint Tenants the share of anyone who dies does not automatically pass to the other owner(s).  If an owner dies without making a will the Intestacy Rules determine to whom their share passes.  This may not be the other owner even if you and your co-owner are married to each other and will not be the other co-owner if you are not married to each other.  For this reason alone, making a will is essential to ensure that your intentions are formally recorded rather than left to chance.

If you choose to be Tenants in Common you may have a specific purpose or intention for your share of the property.  This could be:

ensuring your children inherit that share of the property (particularly important if your spouse or partner remarries after your death or you have children from a previous relationship) or
protecting your share if your co-owner has to move into residential care.
for tax planning purposes, or
to ensure that each party’s contribution is acknowledged and can be repaid when the property is sold.

Unmarried couples and selling a property

A property may have to be sold because one person wishes to move on, insolvency or relationship breakdown. In any of these cases it is important to understand how each person’s share is to be calculated. This is relatively easy if the property is purchased without the aid of a mortgage.

The arrangement becomes more complicated if each person is making a different contribution to the purchase price and more so if there is a mortgage to be paid. In working out how the proceeds of sale are to be divided you may wish to take into account:

the initial contributions
any subsequent capital expenditure – major repairs, an extension
payments towards the mortgage – both capital and interest

For example, consider whether if one person is paying more towards the mortgage than the other, do they get credit for reducing the mortgage as in doing so the amount to distribute on sale will increase?.

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Legal rights if one of the unmarried partners dies

If the owners of the property are not married to each other or in a civil partnership then the inheritance and tax consequences of a death may be significant.

Joint Tenants

The property will automatically pass to the other owner(s), whatever their relationship. Inheritance tax may be payable by the surviving owner.

Tenants in Common

The survivor, if not married to the person who has died or in a civil partnership, will not inherit the share of that person unless that person has made a will to address this. Without a will the Intestacy Rules apply and those who inherit under these rules may wish force the sale of the property. A will made in conjunction with your purchase and your joint ownership arrangement is imperative for unmarried co-owners to ensure their wishes are met in the event of death.

Even if provision is made in a will for the survivor to inherit the share in the property there are other considerations. For example, will the survivor be able to pay the mortgage alone? To address this, other assets (to which the survivor may not otherwise be entitled) can pass to the survivor under the terms of a will.

If you take out life insurance to cover the outstanding mortgage and it is imperative that the surviving owner is entitled to the proceeds of the policy. This is assured if the policy is on joint lives payable to the survivor on first death. If, however, the policy is on the life of the person who dies and belongs to them, then it forms part of their estate and passes under a will (if any), failing which it passes in accordance with the Intestacy Rules meaning that the unmarried partner will not benefit- even if the reason for the policy was to pay off the mortgage.

Inheritance Tax

Whether a property is held as Joint Tenants or Tenants in Common and especially If the co-owners are not married, then Inheritance tax must be considered. The Inheritance Tax treatment of unmarried couples is not as favourable as for those who are married or in a Civil Partnership.

If the estate of the person in an unmarried relationship who dies (including their share of a jointly owned property) is more than the Inheritance Tax nil rate band (currently £325,000) then a tax liability may arise and careful planning is required to ensure that the tax liability can be paid and this does not, for example, cause the sale of the jointly owned property

What is a Declaration of Trust?

A Declaration of Trust is a legally binding document that records the financial arrangements and intentions of property owners, in particular defining how the share of each co-owner is to be calculated. It removes uncertainty and reduces the chance of disagreements in the future. Once a Declaration of Trust is in place both parties will know how the sale proceeds will be divided if the property is sold or if one party wants to sell their share.

A Declaration of Trust may also be useful to set out how the proceeds of an insurance policy are to be used.

It can be set up for married and unmarried couples, friends, business partners, investment arrangements with another person or if you are contributing to the purchase of a property (e.g. a parent helping a child).

Cohabitation Agreements and Property

A cohabitation agreement is more wide-ranging than a Declaration of Trust and records arrangements between two or more people who have agreed to live together, as a couple or otherwise. It records each party’s rights and responsibilities in relation to the property where they live or intend to live together, financial arrangements between them, both during and following cohabitation and the arrangements to be made if they decide that they no longer want to live together.

A cohabitation agreement can reduce the possibility of a dispute about property ownership if cohabitation ends as well as avoiding the cost of litigation about former cohabitees’ respective beneficial interests in the home that they shared. It can include:-

Ownership of joint and separate property, if cohabitation comes to an end.
What should happen if a co-owner wants to sell the property and realise their investment and the other does not.
The arrangements for one party to buy the other’s share.
How and when the property is to be sold.
How the costs of sale are to be paid and by whom.
How the proceeds of sale are to be divided.
How the mortgage and other household expenses are to paid, by whom and in what proportions.
Occupation of the property and payment of household and living expenses pending sale.
Financial support between cohabitees during and after cohabitation ends.
The living arrangements and financial provision to be made for the parties’ children, if cohabitation ends.