Civil Partnerships

In previous issues:-

WHY DO LIFE INSURERS ASK SO MANY QUESTIONS? You could be forgiven for asking, “what is underwriting and why does it matter to me?”  After all, most of us have no idea what happens to our application form when it goes to a life insurer for assessment.  And yet, this is a crucially important element of buying an insurance policy like Life Cover or Critical Illness Cover. read more Writing a will It’s a fact that an amazing 76% of the UK population do not have an up to date will Read more

6 April 2006  Will See a Revolution in Pensions 6 April 2006 is A-Day. It will herald the introduction of dramatic changes to the way in which pensions operate in the UK. It’s the most radical overhaul in decades, and it’s going to have a profound effect on the way everyone plans for the future. Read full article

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TRADED ENDOWMENT POLICIES In the first of a series of features and articles, Nick Cosby of the Acumen Investment Partnership answers your questions on Traded Endowment Policies. READ MORE

In this briefing:

• The effects of registering a civil partnership
• Tax planning opportunities
• Where to find further information

Who can register?

Under the Act, same sex couples will normally be able to register a Civil Partnership if they are:

• Not closely related
• Not already in a civil partnership or legally married
• Age 16 or over

The effects of being in a Civil Partnership

Inheritance Tax
Lifetime gifts and death transfers between civil partners will be exempt from inheritance tax in the same way as those between spouses (this is subject to the same restriction to a cumulative total of £55,000 where the recipient is non-UK domiciled).

Opportunities:

• Same sex couples who register partnerships should revisit any inheritance tax planning they have already undertaken.
• Like spouses, civil partners should consider planning to ensure that the inheritance tax nil-rate band is used on the first death.
• Where necessary, estates can be equalised with no IHT or capital gains tax payable on transfers between them.

Capital Gains Tax
Civil partners are able to transfer assets, which are chargeable to capital gains tax, on a no gain/loss basis.  When the partner in receipt of the asset subsequently disposes of it, the asset will be treated as if he/she has owned it from when his/her partner originally acquired it for CGT purposes.

As with married couples, only one property owned either solely or jointly by a couple, who have entered into a civil partnership, may be treated as the principal private residence for the purposes of private residence relief at any time.

Opportunities:

• Once registered as civil partners, it will be possible for the partners to gift assets in order to be able to make use of both their exemptions and/or use a lower rate of tax where one is a higher rate taxpayer and the other is a basic rate taxpayer.
• Before registering a civil partnership, it may be worth considering whether it is worth gifting assets to trigger a disposal in order to use up the annual allowance and re-base the asset.
• There may also be an opportunity to gift an asset in order to be able to crystallise a loss to offset against a partner’s gains.
• Civil partners will also have the opportunity to equalise their estates for IHT planning without any immediate CGT liability.

Anti-Avoidance provisions
Anti-avoidance provisions aimed at married couples also apply to civil partners.  Perhaps one of the most significant is the settlement legislation (now in s624 Income Tax (Trading and Other Income) Act 2005), which treats income of a settlement as that of the settler, where the settlor’s spouse has an interest in the settlement.  Similar provisions also apply for capital gains tax purposes.

Wills and succession
In England & Wales, if an individual has a will and then registers a civil partnership, the existing will is automatically revoked (unless it was made in anticipation of the event).

If a partnership is formally ended, legacies to a former civil partner in England & Wales will fail (unless it is made clear that they should still stand).

If a civil partner dies intestate, the surviving partner will be subject to the same intestacy provisions that apply to married couples.

The complex system of prior rights that applies in Scotland is also extended to cover civil partners. 

Life assurance
Civil partners will have an automatic insurable interest in each other’s lives, as is the case for spouses.

Pensions
Amendments to Employment Equality (Sexual Orientation) Regulations 2003, in light of the Civil Partnership Act 2004, means that employers cannot treat married couples and civil partners differently in respect of service from December 2005.

A contracted-in occupational pension scheme must provide the surviving civil partner with a pension equivalent to a spouse’s pension based on rights accrued from 5 December 2005 (irrespective of the date the civil partnership is registered).  The scheme can provide benefits based on earlier rights if they wish.  Any other benefits paid to the spouse must be paid to civil partners (including death in service lump sums).

In addition, a contracted-out occupational scheme must provide the surviving civil partner, with a pension equivalent to a widow’s pension based on contracted-out rights accrued from 6 April 1988 (or the date the member joined the scheme if later).

State benefits
From 5 December 2005, co-habiting same sex couples who are claiming benefits will be treated as a couple, whether or not they register a civil partnership.  Their joint income will be taken into account in assessing their claim, which could mean that they will lose money, as they are no longer treated as single individuals for the purposes of means testing.  Benefits affected include, for example, Income Support, Pension Credit, Working Tax Credit and Child Tax Credit.

Civil partners may also be entitled to bereavement benefits or State Retirement Pension if their partner dies.

Next of kin
Civil partners will usually be accepted as their partner’s next-of-kin, allowing them for example, to register death and organise funerals.

Ending a civil partnership  

When a civil partnership is brought to an end, partners may have a duty to provide for each other financially, and for any children they have adopted together.  A court will decide how property is to be divided, who may stay in the family home, and who will have custody of any children.

Further information

Further information is available from websites such as that of the Citizen’s Advice Bureau (www.adviceguide.org.uk).  The Act can be found at www.opsi.gov.uk.

 The links provided are for general information purposes only.  The Acumen Investment Partnership accepts no responsibility for information contained in the sites or for the sites not being available at all times.