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Living together is growing in popularity as people choose to cohabit rather than get married – at least initially – in later life.
In every age demographic (apart from those over 80) the number of people cohabiting has grown in the last decade, according to the latest ONS data.
But different living arrangements bring financial challenges. For instance, if you aren’t married or in a civil partnership, then you won’t benefit from any spousal tax allowances or have the same legal rights if you separate or one of you dies.
You’ll need to update your will to ensure your partner inherits as you intend and to nominate them as a beneficiary for any policies with death benefits, explains Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown.
“More people are choosing to cohabit later in life, but this can have big implications for your finances,” she says.
So, unromantic as it is, having these discussions with your partner before moving in together can give peace of mind if anything unexpected happens.
If one person moves into the other’s property, they won’t automatically gain any legal rights to it, regardless of how long they live there.
This could cause problems if the property owner dies first and could potentially leave their partner without a roof over their head.
However, it is possible for arrangements to be made that allow their partner to remain in their home if they die first.
“If one of you is the sole owner, there’s also the possibility of granting the other a life interest in it in your will, and then it passing to the beneficiaries of your choice after the cohabitee’s occupation ends - so they aren’t turfed out,” says Lisa Pepper, Partner at Osbornes Law.
This type of arrangement – known as a ‘life interest trust’ - would mean they would have the right to carry on living in it until they die, at which point it would be passed on according to the instructions in your will.
Although simply living in your home isn’t enough for a partner to get legal rights to it, Pepper warns that could change if they make an investment in the property.
“You may not want your partner to be a joint owner but be aware that if they start contributing to the mortgage, or funding more substantial renovations, it could give rise to a claim in the property, should you split up,” she says.
Keep a record of who paid for the mortgage, if you still have one, as well as any substantial renovations – and don’t forget to notify your local council if your partner moves in with you and you were claiming the 25% single person discount on your Council Tax.
If you move in with a partner, any means-tested benefits you currently get, such as Pension Credit or Housing Benefit, are also likely to be reassessed.
You’ll be expected to claim as a couple, and the income, savings and financial needs of both of you will be considered.
If you’re currently receiving Pension Credit, this will stop if you start living with a partner who’s under State Pension age and you’ll need to reapply for alternative benefits.
If you’re purchasing a new home as a couple, it’s important to seek legal advice about how the property will be owned as this will determine your rights in the event of a split or one of you dying.
“You need to ensure there’s a declaration about the size of your respective shares (in percentage terms), and you understand the difference between joint tenants and tenants in common,” says Pepper.
With joint tenants, if one of you were to die, the other would inherit 100% of the property. As tenants in common, each of you owns a specific share, and if one of you were to die their half would be inherited by whoever it was left to in their will, she explains.
If you both have your own homes and plan to keep the properties when you move in together, you'll need to designate one as your main residence so Capital Gains Tax potentially won’t need to be paid as and when you sell it.
“You have up to two years to inform HMRC of your choice. If, later, you are selling other property that isn’t your main residence (e.g. a buy to let or second home), CGT will be liable on any profit made,” says Rachel Griffin, Tax and Financial Planning Expert at Quilter.
Should you decide to let one of the properties out, there'll also be tax implications to consider. “If one partner rents out their property, the rental income must be declared on their tax return, potentially affecting their tax bracket,” she adds.
A cohabitation contract (or living together agreement) sets out arrangements for finances and property while you're living together and then what happens if you split up, become ill or die. This is a legal document and should be handled by a qualified professional.
Those moving in together might consider making a ‘Declaration of Trust’ or Deed of Trust. This a legal agreement about how you share your property.
While becoming tenants in common means you can specify the share each person gets, by using this trust one can specify exactly what share of the equity they’re entitled to if the property is sold or should one party wish to buy the other out.
It can also make sure someone can get back their initial deposit before equity is divided, and highlight changes in how much of the property each person owns depending on contributions to the mortgage or renovations.
It’s a good idea to set both up before you move in together, and a family law solicitor should be used to help you prepare these legally-binding documents.
This helps avoid any doubt or confusion on the creation or wording and should explain any charges or tax implications you might face.
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There’s no ‘one size fits all’ approach to managing your money as a couple. Having a full picture of each other’s finances and a good understanding of your partner’s attitude to money will help you decide whether pooling your resources or keeping them separate is right for you.
“You need an open conversation and agreement from the start regarding who will pay for what. It might also be worth exploring what is important to each person,” says Lisa Conway-Hughes, Chartered Financial Adviser at LCH Wealth.
“For example, the top of one person’s list might be holidays whilst the other loves spending money on the garden and eating out.”
Having a joint account can make the household finances easier, she says, but it’s essential that you both have access and oversight.
If you’re worried about bad credit – either your own or absorbing someone else’s - moving in together does not link up your credit histories.
“But if you jointly apply for accounts, such as a mortgage, current account, loan or even some household bills, a financial connection is usually created with the credit reference agencies, linking up your credit histories in the eyes of lenders,” says James Jones, Head of Consumer Affairs at consumer credit reporting company Experian.
This means that any future application either of you makes could be affected by the other’s borrowing track record.
“Reviewing your credit reports and scores together before moving in and then discussing whether linking up your credit histories is a good idea. It is certainly possible to keep your finances totally separate [if that may help],” adds Jones.
It’s not always easy to discuss worst-case scenarios, particularly when everything seems rosy - what if one of you dies, you split up, there’s a long-term illness or the need for later life care?
But unmarried couples don’t have the same legal rights as those married, particularly when it comes to inheritance and asset protection.
“It’s important to put plans in place and make sure you both have up to date wills and power of attorney. For example, if one of you dies, is the remaining partner able to stay in the home for the rest of their life or maybe for a set period?” says Conway-Hughes.
Be honest, open and transparent about your financial circumstances, including any existing wills and inheritance wishes.
For instance, you may have children from a previous relationship you want to provide for, or financial commitments from a prior divorce or civil partnership.
“If you’re living with your partner but you aren’t married, you don’t automatically have rights to each other’s assets if one of you dies, and this includes your pension – whether it’s State or workplace,” says Jackie Spencer, Head of Money and Pensions Policy at the Money and Pensions Service.
But while you can’t leave your entitlement to the State Pension to your partner if you’re not married or in a civil partnership, that’s not the case if you’ve paid into your own scheme.
“For private or workplace pensions, unmarried couples will need to take additional steps to ensure their partner receives their pension after they die,” says Spencer.
You’ll need to fill out expression of wishes forms. “If you have named your partner as a ‘nominated beneficiary’ they will be able to inherit your pension when you pass away,” she adds.
The same applies to life insurance policies. If you want to ensure that a specific person will receive the funds in the event of a payout, you’ll need to nominate them as a beneficiary.
If you have a defined benefit pension, the situation is a bit more complicated when you die. With these workplace pensions, which are based on your earnings and time in the scheme, some payments would normally continue to a spouse after you've died.
While some schemes will make these payments to cohabiting partners it’s not guaranteed, so check the rules for your scheme.
“If you are in a defined benefit pension then you will need to check with the administrator about who can receive death benefits,” says Morrissey.
“Depending on the rules of the specific scheme some will pay out to cohabiting partners, but others won’t.”
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