The new regulations may result in an inheritance tax bill of pounds 82,000 for cohabiting families

Even if the deceased was too young to ever receive their pension, it could force many cohabiting couples to pay inheritance tax if the tax breaks associated with marriage are eliminated

According to a recent analysis, couples who are moderately well off and live together but are not married could face an inheritance tax bill of £82,000 in 2027.

According to calculations by wealth manager Quilter, if a working-age homeowner in England passes away after two years, even if that death occurs before reaching pension age, the partner of that homeowner with an average-priced property (290,395) and a moderate pension pot (415,000) may be hit with an inheritance tax (IHT) bill of 82,158. Pensions will be subject to inheritance tax starting in April 2027 as a result of adjustments made in the Autumn Budget.

Only half the value of the property is included in the estate because it is often jointly owned (joint tenants) in cohabiting households. Because of the pension inclusion alone, a normal English family would still have difficulty avoiding an IHT bill of £24,079 even at that point. The bill is more than three times higher in cases where the deceased is the only owner of the property.

"Charging inheritance tax on a pension that someone could not access and will never be able to use because they passed away before the minimum pension age is even more unjust for cohabiting families who have no spousal relief or ability to transfer tax allowances," stated Jon Greer, head of retirement policy at Quilter.

"Cohabitees are not protected by the same exemptions and allowances as married couples. Carve-outs or transitional reliefs for working-age deaths should be taken into consideration by policymakers, especially when young children are involved.

According to Greer, if nothing changes, the soon-to-be implemented policy of inherited pensions being subject to IHT, even before the minimum pension age, "risks compounding the emotional toll of bereavement with a financial hit that can destabilize a family's future despite raking in very little in additional revenue."

The common law marriage myth.

About 5% of people living together in the UK are cohabiting couples, and the percentage is growing. The Office for National Statistics (ONS) estimates that 3.5 million families (17.7 percent of all families) were cohabiting couples in 2024, up from 3.1 million (16.4 percent) in 2014.

In contrast to civil partners and married couples, who have specific legal rights and obligations in the event of a divorce or death, cohabitants generally have less protection. Cohabitants do not always inherit from their partner when they pass away, but if they do, they are not eligible for the spousal exemption, which allows assets to be transferred nil-rate or tax-free.

The so-called common law marriage myth, which holds that cohabitants are treated by the law as though they were married after a specific period of time together, is a misconception that many people hold.

Cohabiting couples will be even worse off than their married counterparts as a result of changes to the inheritance tax laws pertaining to pensions.

Unused pensions were previously normally transferred tax-free to heirs who passed away before turning 75, particularly before they were able to access them. According to HMRC, unless there are currently any exemptions, pension savings will start to count toward a person's estate for IHT purposes in April 2027, regardless of the person's age at death.

This implies that cohabiting families with small children who are unable to benefit from the tax breaks available to married couples will be much more vulnerable to possible IHT bills.

Rising real estate costs and inheritance taxes.

Families' IHT bills are already rising as a result of rising home prices and frozen inheritance tax thresholds. According to the most recent data from HMRC, heritage tax revenue to the Treasury through the first quarter (April to June) of the 202526 fiscal year was 2.22 billion. Compared to the same period in 2024 - 2025, the figure indicates a 134 million, or 6%, increase in inheritance tax receipts.

Quilter's analysis demonstrated how cohabiting couples might experience this nationwide now that the pension inheritance tax regulations have been established.

In London, for instance, a pension of 415,000 plus sole ownership of an average-priced home (565,637) results in an IHT bill of 192,254 in 2027. Even though that amount drops to 129,127 if the house is jointly owned, it is still a significant blow to a bereaved family without the safeguards that married couples enjoy.

Bills for joint-ownership cases will remain at 23,891, 21,392, and 20,007, respectively, in Wales, Scotland, and Northern Ireland, where lower home prices meant that families with comparable pensions in the past were usually not liable.

Asking prices are predicted to increase by 4% in 2025 alone, according to real estate website Rightmove, indicating that these liabilities will probably increase even before the regulations go into effect.