In its response to a government review of inheritance tax, Royal London has called for cohabiting couples to receive the same tax treatment as those who are married or in civil partnerships.

Currently, married couples and those in civil partnerships can pass their estate to one another tax free on death, transfer any unused part of their IHT nil rate bond (currently worth £325,000) to one another on death and transfer any unused portion of the recently introduced residential nil rate band to on another on death.

However, cohabiting couples are not able to benefit from these measures, despite the number of them growing, with an estimated 3.2 million cohabiting couples in the UK in 2016, compared to approximately 1.5 million in 1996.

Previously, cohabitation has been seen as a precursor to marriage or civil partnership. However, it is increasingly becoming an alternative.

Royal London has said that there would need to be safeguards in place to prevent fraud, such as the requirement for cohabiting couples to evidence that they had lived together for a certain amount of time before qualifying for the benefit.

Royal London personal finance specialist Helen Morrissey said: “Cohabiting couples can remain together long term, raise children together and share assets. Many cohabiting couples believe that after a certain amount of time cohabitees achieve some kind of “common law marriage” status whereby they attain a similar level of rights to those who are married or in civil partnerships. However, this is not the case and a surviving partner can find themselves with a sizeable IHT bill when their partner dies. The time has come to bring these rules into the 21st century and recognise that not everyone wishes to marry.”

The Office for Tax Simplification is expected to publish its report in autumn 2018.

In its response, Royal London also called for the level of gifting allowances to be raised as well as a review of tax charges when a life insurance policy has been paid into a trust.

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