Cohabitation and Coalition

One of the few eye-catching pieces of news during the political party conference season was the proposal that the law of marriage be extended to gay and lesbian couples.


We have come so far in social policy terms, since the introduction to Parliament of the Civil Partnership Bill in 2004. 

The appetite for civil partnership amongst same sex couples has, in fact, been quite striking. A report published last month by the Office for National Statistics (“Civil Partnerships Five Years On”) found that, at the time of the preparation of the legislation in 2004, the estimated take up rate for the new status indicated that, by the end of 2010, there would be between 11,000 – 22,000 registered partnerships. The actual number was 42,778.

The report also revealed that the rate of break up or “dissolution” of partnerships is lower than the rate of divorce.  Whilst the divorce rate remains high it is perhaps not surprising that more and more heterosexual couples have chosen to cohabit in the long term without ever marrying. Likewise, for those who do ultimately marry, co-habitation prior to marriage is now absolutely the social norm, even, please note, within the Royal Family!

The prevalence of cohabitation without marriage continues to present a range of problems for the couples concerned and an opportunity for advisers. Many couples assume that, if they part, they will have some sort of financial claim against each other (akin to ancillary relief upon divorce) or succession rights, if one of them dies. 

In 2005 the Law Commission was tasked with investigating this difficult area and its report – “Cohabitation: The Financial Consequences of Relationship Breakdown” published in July 2007 made some radical proposals for reform which were broadly welcomed by family lawyers.  The key idea was a new regime of property rights for cohabitants which would apply after a certain period of cohabitation; the suggestion was something between two to five years. However, these proposals have since been shelved.

Practitionerswill, therefore, need to continue to be alive to the particular needs of couples who cohabit without marrying. These couples, even more than spouses, need good advice on estate and tax planning; they need well drafted wills and advice about property co-ownership perhaps using an express trust.

It is also interesting to view the changing approach of HM Treasury to marriage and cohabitation as seen in the tax legislation. For example, the exemption from inheritance tax on assets passing between spouses has been extended to those in civil partnerships, whilst being denied to cohabiting couples. Yet for other tax purposes a couple living together as they were married (or in a civil partnership) are taxed like spouses. 

Cohabiting couples who do decide to marry also need advice about making the transition. Apart from the obvious (e.g. the revocation of existing wills by marriage) there may be less obvious problems. For example, for capital gains tax purposes two cohabitants can each have a separate claim to principal private residence exemption. Upon marrying (or registering as civil partners) they can only have one claim. Another issue is the inheritance tax treatment of mixed domiciled couples where the very limited spouse exemption will have to be considered.

The authors will watch with interest to see whether the cohabitation reform proposals are ever revived and, more immediately, to see whether gay marriage is advanced to legislation.  If it is, will the Civil Partnership Act have to be repealed? Marriage and civil partnership are so similar in law that, arguably, it makes little sense to allow gay couples the choice (a choice which heterosexual couples do not have). In the meantime, just as our political masters negotiate the tricky compromises of coalition government, so private client advisers will continue to steer their unmarried clients through the equally tricky business of cohabitation.

Julian Washington, private client director, RBC Wealth Management and Louise Somerset, tax director, RBC Wealth Management