KINGSLEY NAPLEY'S LGBTQ BLOG SERIES 2020

Equal civil partnerships finally allow equal access to tax and inheritance perks

26 February 2020

Legal recognition of relationships has dramatically changed in the UK and across most western countries. With an urge for equality and to recognise same-sex relationships, the government first introduced civil partnerships for same-sex couples in 2005 and subsequently same sex-couples could legally marry from 2014.

In December 2019, civil partnerships were opened up to all couples in England and Wales following the legal campaign by Rebecca Steinfeld and Charles Keidan, which culminated in the Supreme Court’s unanimous decision that differentiating between same-sex and opposite-sex couples was discriminatory

Now all couples are on an equal footing with a choice about how to formalise their relationship. For many, traditional marriage is no longer desirable for religious or societal reasons. Some of our clients do not want to re-marry following a difficult divorce, but see civil partnership as a suitable alternative to legally formalise their relationship.

There is no need to exchange vows for a civil partnership, or to be in a sexual relationship, so friends could even become civil partners in order to take advantage of the legal and tax protection on offer.

People in long-term relationships often think they are ‘common law husband and wife’. However, this is a dangerous and mistaken assumption.  There is no such thing as a ‘common law marriage’ and until there is a change to cohabitation laws, cohabitants do not have the same legal rights as married couples/civil partners.

Civil partners are entitled to the same property, pension and next-of-kin rights as married couples, as well as the following inheritance and tax benefits:

Inheritance Tax (“IHT”)

There is no IHT due on estates left to a civil partner as the spouse exemption can be claimed. If a cohabitant inherits their partner’s estate, 40% tax is payable on assets over £325,000 (the current nil rate band).

 

Intestacy Rules

If someone dies without a will, the surviving civil partner will automatically inherit under the intestacy rules. A cohabitant won’t inherit under the intestacy rules unless they are left a legacy under a will.

 

Capital Gains Tax (“CGT”)

Transfers of assets between civil partners pass free of CGT as they can claim the spouse exemption provided they are living together. In contrast, transfers between cohabitants are subject to CGT.

One disadvantage of marrying/entering into a civil partnership is that couples can only nominate one main residence for principal private residence relief (“PPR”) when selling their main home. Cohabitants do not need to jointly nominate and so could claim PPR on two separate properties.

 

Income Tax

Civil partners can transfer 10% of their unused personal allowance using the Married Couples Allowance. This is normally useful when one partner is a low earner and has some personal allowance remaining which can be used by a higher tax rate payer. This is not available to couples who are not married/civil partners.

 

Stamp Duty Land Tax (“SDLT”)

There is 3% SDLT payable on second homes or investment properties. A disadvantage of marriage/civil partnership is that the couple is treated as a single unit, so if one partner already owns property and the other partner purchases a property for the first time, there will still be 3% SDLT payable. Cohabitants are treated as separate entities for purchasing purposes.

 

As we enter a new decade with this welcome change to the law, there is still reluctance from the Church of England who recently issued guidance stating that those in civil partnerships should be in ‘sexually abstinent friendships’. Regardless of such comments, civil partnerships remain a popular option for those who identify as LGBTQ, and are now also available for heterosexuals who dislike the religious and societal connotations of marriage. Finally all couples have access to the same tax benefits/entitlements that married couples have traditionally enjoyed.

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