Tax Issues for Civil Partnerships

“It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.”¹ In earlier centuries in England, marriage was essential for full membership of society. However, as society has changed, the legal and social status of marriage and that of husband and wife has developed and changed too. Most recently The Civil Partnership Act, which came into force on 5th December 2005, allows same sex couples to formalise their relationships. It has been considered to be one of the most significant pieces of social legislation the Government has introduced. The legislation signifies a radical development in social policy and creates an entirely new legal status for same sex relationships, designed to be as close to marriage as possible.

Civil partnerships will be treated in exactly the same way as married couples for all tax purposes. This means that tax charges and reliefs will apply equally to married couples and civil partners. For example:

• When a registered partner dies, there will be no liability for inheritance tax on assets left to the surviving partner.

 
• Civil partners will be able to transfer assets between each other free of inheritance tax and capital gains tax on the same basis as married couples.

 
• The capital gains tax main residence exemption will apply to only one property owned by civil partners. In cases where civil partners own more than one property, they will have to elect jointly to treat one property as their main residence for capital gains tax purposes.

The Act amends certain legislation relating to Wills, administration and family provision. The most important of which are:

• Registering a civil partnership will revoke an existing Will made by either party unless made in contemplation of the new partnership.

 
• A dissolution of a civil partnership will have the same effect on Wills as divorce so that any gift to the civil partner will fail.

 
• If a registered partner dies and there is no Will, the surviving partner will be recognised in the same way as a spouse under intestacy rules.

 
• Surviving civil partners will have the same rights as spouses to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 against the estate of the deceased partner for reasonable financial provision.

These changes have far reaching implications for registered same sex couples, introducing opportunities for tax planning and a need to be aware of possible pitfalls. “Reader, I married him”². It seems that life is more complicated than it was when Jane Eyre married Edward Rochester.

¹ Jane Austen, Pride and Prejudice.
² Charlotte Bronte, Jane Eyre.

May 2006

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