In a two part series of 10 things you need to know about opposite-sex civil partnerships, we answer five questions on the subject.
Opposite-sex civil partnerships: 10 things you should know – Part 1
Only a few days into the New Year and we are already seeing clients planning on entering into an opposite-sex civil partnership and asking for advice in relation to their Wills and inheritance tax. Whilst same-sex couples have been able to enter into a civil partnership since 2005, it was only following a long legal battle, that on 31 December 2019 opposite-sex couples could do the same.
The Government Equalities Office impact assessment estimates that around 84,000 opposite-sex couples could enter into civil partnerships in 2020.
Civil partnership provides an alternative option for couples who do not wish to marry, perhaps because they do not like the religious connotations of marriage, or see it as being steeped in patriarchal tradition with promises to “obey”, but want to formalise their relationship in law and benefit from the same tax breaks that a married couple enjoy.
How do you get a civil partnership?
There are two steps needed to register a civil partnership. The first is for both of you to give notice of your intention to register your civil partnership to your local registry office. Details from the notice will be available for people to see for 28 days, to give an opportunity for any objection, after which you can then complete the second step of registering your civil partnership, which can be done in any register office or at an approved venue.
Will my civil partnership revoke my Will?
Yes. Ahead of your civil partnership you should review your Will. If the terms of the existing Will are still what you want it can simply be re-printed and signed after your civil partnership or a codicil can be signed with the effect of ‘republishing’ your existing will after the civil partnership has been registered. Alternatively the Will could be amended to include a contemplation of civil partnership clause so that the Will comes into effect when signed and continues to be effective following your civil partnership.
As the inheritance tax situation changes dramatically for civil partners you should take this opportunity to fully review your Will to ensure that it is as tax efficient as possible.
What happens if my partner dies without making a Will?
To consider this let’s take the example of Colin and Patsy who have been together for 10 years and have two children. Like many couples they had chosen to live together but not get married and until now could not enter into a civil partnership.
So, as a co-habiting couple they referred to themselves as being in “a common law marriage” and had mistakenly thought that they would have all the same benefits as a married or civil partnered couple, but that is not the case.
Before entering in to civil partnership, If Colin died without making a Will then his estate would not pass to Patsy, but to their children. The only way that Patsy could benefit was if he made a Will in her favour or they held assets jointly. Otherwise she would have to bring an Inheritance Act claim against her own children. Assets passing to Patsy would not benefit from the spouse/civil partner exemption to inheritance tax.
The law in this area is being reviewed and on 4 February 2020 the House of Lords will discuss the proposed Cohabitation Rights Bill 2017-19, which aims to provide more legal protection regarding property for the partner of a deceased cohabitee.
Colin and Patsy enter into a civil partnership. As civil partners, the intestacy provisions would apply. if Colin died without making a Will and his estate was worth less than £250,000 Patsy would inherit all of it.
If, he had more than more than £250,000, then Patsy will inherit the assets up to £250,000, and all the personal possessions, whatever their value. The remainder of his estate would be divided half for Patsy and the other half is divided equally between their children. This, however, is not what the couple want and they decide to make Wills to appoint executors and guardians of their choosing and to leave their estate in the way that they want, as tax efficiently as possible.
Are there inheritance tax (IHT) benefits of entering into a civil partnership?
Yes, there are major IHT benefits being in a civil partnership.
Gifts on death to a civil partner are not usually subject to IHT, so using our example, if Colin leaves all of his estate to Patsy no IHT will be payable. Also as none of his nil-rate band has been used, Patsy will be able to add this to her own, effectively doubling the threshold, meaning that £650,000 could pass to their children on her death free of IHT.
In addition to this, the transferable main residence allowance that came into effect in April 2017 can be claimed. This applies where married/civil partnership couples leave a residence to direct descendants (children, grandchildren and stepchildren). This increases the IHT free allowance by currently a further £300,000, increasing to £350,000 for deaths after April 2020, meaning that in total £1 million can pass to the children free of IHT.
Can my civil partner inherit my ISA allowance?
Yes. Bereaved civil partners can claim their partner’s additional permitted subscription (APS) meaning that in addition to their own ISA allowance they can claim an additional amount equal to the total value of their deceased partner’s ISAs.
So in our example, if Colin had ISAs worth £20,000 when he died, the APS would allow Patsy to pay £40,000 into ISAs in the 2019/20 tax year, being her own ISA limit of £20,000 and the APS from her civil partner.
If you are considering entering in to a civil partnership, or have queries about how your estate would be dealt with pre or post-civil partnership, for more information or advice please contact Alison Craggs. You can read part 2 of the article here.
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