Civil partnerships in the United Kingdom, granted under the Civil Partnership Act 2004, allow same-sex couples to obtain essentially the same rights and responsibilities as marriage. Though from March 2014 full same-sex marriage was legalised in England, Scotland and Wales, civil partnership remains available. Designed to be very much equivalent to marriage for same sex couples, a civil partnership carries both rights and responsibilities.
Perhaps the most important point to note is that a civil partnership must be registered. Just as a heterosexual couple living together do not benefit from the protections of a married couple, a same sex couple will be treated no differently under the new law unless their relationship is registered.
Registration of a Civil Partnership must be made in the presence of a Civil Partnership registrar and will require two witnesses. As with a marriage, the intention to register a Civil Partnership must be announced, publicly, at least 28 days (England and Wales) prior to the Registration.
It will be necessary for both parties to the partnership to be single so that previously married individuals will need to obtain a divorce. This is an important point as many individuals will not have bothered to seek a divorce since no form of legally recognised relationship was previously available.
Civil Partnerships will be dissolvable in much the same way and with similar grounds, as divorce. As with divorce, the Civil Partnership will only be capable of dissolution after one year.
Wills and Intestacy
Civil Partnership registration will automatically revoke any Will written under the law of England and Wales and Northern Ireland. Scottish Wills are not revoked in this way.
All intestacy provisions relating to the protection of a spouse now apply equally to a registered Civil Partner.
Any same sex couple contemplating registering a Civil Partnership should ensure that they review their Wills. This is particularly important where children are involved and/or the will reflects any inheritance tax planning (see below).
The Civil Partnership legislation affects virtually every aspect of financial planning including, Intestacy, Insurable interest, Maintenance/Property share on dissolution, Immigration/Nationality, Employment benefits, State and occupational pensions, Inheritance Tax, Income Tax, CGT and State Benefits.
The ‘spouse’ exemption and ‘gifts in consideration of marriage’ exemption are effectively amended by the Civil Partnership Act to include ‘Civil Partners’ and ‘Registration of Civil Partnership’ respectively.
This means that some Inheritance Tax (IHT) planning which has already taken place – single life policies to meet first death IHT liabilities, etc – may no longer be necessary.
Registered Civil Partners have unlimited insurable interest in each other as do spouses. It is therefore now possible to arrange life of another policies and joint life policies within these relationships (of particular importance where one partner has children who are intended to benefit on the second death).
All IHT planning undertaken by same sex couples will need to be reviewed following Registration of a Civil Partnership as many new opportunities are now available including trusts (including will trusts) and insurance based plans.
Not all other countries will recognise a UK Civil Partnership as equivalent to a marriage for either tax or intestacy purposes (even if that State has equivalent legislation) so that particular care must be taken where overseas property (as well as non-domiciled partners) is involved.
Gifting within the Partnership
As well as benefiting from the IHT ‘spouse’ exemption, Registered Civil Partners can transfer assets between themselves on the usual ‘no gain/no loss’ basis which applies to spouses so that there is no CGT payable at the point of transfer.
This combination of reliefs will enhance effective IHT and income tax planning as with married couples since the transfer of assets to equalise estates/income can be completed without a tax charge.
Some arrangements which couples have already entered into may fall within the pre-owned assets tax (POAT) legislation. Since Registered Civil Partners are treated as married couples for tax purposes, the POAT charge will not apply so these couples will no longer have to consider ‘unwrapping’ the relevant arrangements.
The Overseas Element
In introducing the Civil Partnership legislation the UK wasn’t breaking new ground. Many other countries already have broadly similar legislation.
Some overseas partnerships will be recognised by the UK and some other countries will recognise UK Registered Civil Partnerships. Basically, couples will need to check the validity of their Partnership on every change of (national) residence and may need to ‘re-register’ (if that is possible) in order to continue to receive legal recognition for their partnership.
Registration of Civil Partnership will, potentially, mean the loss of CGT exemption on the home of one of the partners. Usual married couples issues ie one principal residence election to be made within two years of Registration.
Anti-avoidance legislation may apply to certain arrangements, including those entered into prior to Registration. This would include the settlor interested trust rules and others where transactions between connected persons are restricted.
It has now become law in the United Kingdom with the exception of Northern Ireland that same sex couples can legally marry.
The above represents our interpretation of current and proposed legislation and HMRC practice. These may change in the future.