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Registering your civil partnership is a big step – the new status of ‘civil partner’ brings responsibilities as well as rights and couples will need to think very carefully (and may need to consult with qualified advisors) before they name the day.
Financial considerations are probably the most difficult areas to deal with when you are thinking emotionally and excited about taking up your ground-breaking legal rights. However, it is very important that you look very carefully at the financial consequences for you both, especially if there is a great disparity in the amounts you and your partner earn or in the assets you each own, or if one of you has inherited family wealth that you wish to keep within your biological family. The Civil Partnership Act includes “dissolution” (not “divorce”) which governs how assets, etc. will be split if your civil partnership falls apart.
You may want to look at pre-registration agreements to make sure that your financial position is protected if your partnership breaks down in the future.
Civil Partnership - Tax Considerations
The financial advantages of entering into a civil partnership are many, especially when it comes to tax. Pre-civil partnership law means that same-sex couples often suffer severe hardship because tax law does not recognise their relationships. For example, if one partner dies, leaving everything to the survivor, the survivor may have to sell the couple’s home in order to pay the inheritance tax (IHT) bill. This gross unfairness will, happily, soon be a thing of the past! For couples who choose to register a civil partnership, the position will be exactly the same as for married couples. If one dies, leaving everything to the other, the survivor need not pay a penny in inheritance tax, even if he or she inherits millions!
In addition, registered civil partners will, in future be able to take advantage of tax planning techniques that have previously only been available to married couples.
Example 1
Sally is a higher rate taxpayer and Jane is a non-taxpayer, having chosen to stay at home and look after the couple’s children, Sally can give income-producing assets (such as shares or an investment property) to Jane in order to make use of her income tax allowances and lower tax rates. Previously, this could have given rise to a Capital Gains Tax (CGT) charge but, once registered, civil partners will be able to transfer assets between themselves without risking a CGT bill.
Example 2
Or take Simon and Jon. Peter bought an investment property 10 years ago. Now he’s decided to sell it. If he does that while he is single, he will face a hefty capital gains tax bill, with only his £8,500 personal exemption to set against it. But if he waits until he registers his civil partnership with Jon, he can give Jon a 50% interest in the property before they sell it on commercially to a third party. The advantages are that they can set BOTH their £8,500 exemptions against the gain and, by dividing the gain between them, they may also achieve a lower overall tax rate.
On the tax front, the only downside is that, if a registered couple each owns their own home, they will have to nominate one as their main residence for the purposes of the capital gains tax principal "private residence exemption". Previously, it would have been possible for them to get full exemption on the sale of both properties – now they will have to choose. There are many factors to be taken into account when deciding which to pick – both tax issues and property market issues – and it is essential that the couple take advice before making this decision.
Things can get more complicated if one or both of you has come to the UK from abroad. Not only are there Inheritance Tax complications but there may be a conflict with UK law if you come from a jurisdiction that has a particular way of dividing assets and arranging maintenance on the dissolution of a relationship. In this situation, specialist advice will be required.
Contact us or fill in the Civil Partnership enquiry form at the bottom of this page and we can help advise on this complex area of tax planning.
Civil Partnership - Wills
Your Will, if you have one, will be automatically revoked if you register under the Civil Partnership Act. If you want to leave anything to anyone other than your civil partner, you will therefore need to draft a new Will.
Contact us or fill in the Civil Partnership enquiry form at the bottom of this page and we can help advise on this complex area of tax planning.
Civil Partnership - Pensions
Entering into a Civil Partnership doesn't give you automatic rights to survivor benefits - married couples would automatically get these benefits. The Civil Partnership Act makes some changes to UK pension rules for Civil Partners and falls short of full equality.
State Pension & contracted out rights in private sector schemes guarantee retrospective benefits to Civil Partners only to 1988.
The Government has stated that it will treat Civil Partners equally in public sector pension schemes such as the NHS, teachers, Civil Service, etc. Full details are still to be published. It is hoped that Ministers will sanction retrospective rights.
Private sector occupational pension schemes are, unfortunately, ignored by the Civil Partnership Act. Pension trustees are still able to discriminate against Civil Partners. If you are a member of such a scheme you should lobby your pension trustees to ensure they amend their rules to include Civil Partners.
Private personal pensions were not discriminating because usually the member can elect to nominate whoever they wish to receive their benefits on their death.
This area of the Civil Partnership Act will need careful scrutiny over the next few years.
Entering into a Civil Partnership doesn't give you automatic rights to survivor benefits - married couples would automatically get these benefits. The Civil Partnership Act makes some changes to UK pension rules for Civil Partners and falls short of full equality.
Civil Partnership and State Benefits
The Government have clearly stated that from 5 December 2005 cohabiting same-sex couples who don't register a civil partnership and civil partners and will be treated in the same way as married couples and cohabiting unmarried opposite-sex couples. This means that the incomes of both partners will be taken into account when calculating entitlement to Tax Credits. Therefore, from that date (5 December), same-sex couples living together (whether or not they register a civil partnership) will have to notify the Tax Credits Office of their circumstances.
The Women and Equality Unit has produced new guidance on Civil Partnership and Income Related Benefits.
For more details on Tax Credits and Child Benefits see the Government's Civil Partnership Tax Credit & Child Benefits guide.
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Contact us or fill in the Civil Partnership enquiry form at the bottom of this page and we can help advise on this complex area of tax planning.
The consultants at Isis Financial Planners have been providing financial advice to gay men and lesbians for many years. The Civil Partnership Act is a huge step forward for same-sex couples, but you do need to understand the consequences of registering your partnership.
If you want financial advice about how Civil Partnerships then please complete the form below.
However, if your query is of a general nature about Civil Partnership, the laws affecting gay people, etc. please consult one of the following organisations:
If you need legal advice, see the bottom of this page.
If you need legal, rather than financial advice, we list, below, firms of solicitors who can help:
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