I own a house with a mortgage and my girlfriend wants to move in with me. We both work and have no children. Having been burnt financially by divorce, I need to know I am protected if the relationship fails. How do I cover myself legally so I do not lose the house or other assets? What rights will she have?
Ursula Danagher, a partner and head of the London family team at RWK Goodman, says your girlfriend does not have an automatic right to a share of your property, provided you are not married or in a civil partnership. Merely living together in a “common law” partnership will not give her protection.
It is estimated that one in five families (more than 6mn people) live together as cohabitees. Yet in England and Wales there is still no law that gives cohabitees the same protective rights as couples who are married or in civil partnerships. The cohabitation rights bill, which seeks to protect the rights of unmarried same sex couples, is still far from being adopted by the government. The situation in Scotland is slightly different, with some financial rights given to cohabitants.
While this is good news for you, matters could become complicated if your girlfriend contributes to your mortgage payments or increases the value of the property by way of substantial building works such as a loft conversion or an extension. In these circumstances, she could make a claim for a proportion of your house should your relationship fail to go the distance.
To protect yourself, I would recommend that you and your girlfriend draw up a cohabitation agreement, also known as a living together agreement with the assistance of a solicitor. Both parties should secure independent expert advice.
This agreement would formalise various aspects of your relationship to afford you both better legal protections. The agreement may be used to specify how the property is owned. It can also cover how income contributions should be treated and determine exactly what the financial arrangements between you both will be. The agreement can be very flexible and include as much detail as you both wish.
It is advisable that the agreement is reviewed if circumstances change, for example if you move to a new house or on the birth of a child. You may also wish to vary the document by agreement. In the event of separation, an agreement considered to be out of date may not be relied upon.
It’s usual for these agreements to be reviewed every few years, so it remains relevant and current. In the event of a relationship breakdown, you can still protect your assets and manage your financial affairs. Finally, you should also consider having a will prepared to specifically determine what should happen in the event of your death.
How can I protect my family from inheritance tax?
I’ve read about HM Revenue & Customs stepping up its investigations on inheritance tax. I gift money to my grandchildren regularly to help with university fees and my assets include things like family jewellery and paintings, which I will want to leave them when I die. What are the best ways to protect my family from penalties after my death?
Stephanie Mooney, a senior associate in the private client team at Kingsley Napley, says HMRC is doing all it can to squeeze as much inheritance tax (IHT) from estates as possible by making more inquiries and opening investigations. Estates totalling more than £2mn are particularly on their radar.
One area under scrutiny is gifts made within seven years of death. Often, individuals do not leave a clear record of gifts made, so it becomes the job of those dealing with an estate to ask questions and trawl through bank statements to identify the value and nature of any gifts. It would therefore make things easier for your family if you keep a clear, simple written record of any gifts you are making and store this with a copy of your will.
This includes the money you are giving towards university fees but should also include any other cash or assets that you give away. This record will help those handling your estate in due course to identify what IHT exemptions and reliefs can be claimed and how much IHT, if any, is payable.
You should also ensure that you have a valid, professionally drafted will in place which is structured to take advantage of any IHT exemptions, makes your wishes completely clear and appoints appropriate people as executors. You can leave your jewellery and paintings (which come under the category of “personal chattels”) to whoever you wish in your will. It will be the job of your executors to ensure those items are properly valued for probate purposes following your death.
HMRC has always looked very closely at property values. It is also essential to show that care has been taken to value personal chattels. If these items might be of significant value (ie over £1,500), the safest course of action would be for your executors to arrange for items to be individually valued by someone appropriately qualified. The valuation should be included with the IHT papers they send to HMRC.
Given that your chosen executors will deal with HMRC following your death, you should encourage them to take legal advice when dealing with the administration of your estate. Your executors can then ensure they show HMRC that considerable care has been taken by them when reporting your estate for IHT purposes. Ultimately, they should read carefully the declaration they will have to make in the IHT return, ensure that they understand their responsibilities and only submit the IHT return once they are comfortable that they have satisfied their obligations.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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