The Civil Partnership Act and Estate planning for same-sex couples

As part of Smith Partnership’s support of LGBTQ+ History Month, we will be looking back at key moments in legal history which have advanced LGBTQ+ rights. Here, we will be looking at the effect of the Civil Partnership Act 2004 and its importance to same-sex couples for estate planning purposes. 

The Civil Partnership Act came into effect on the 5th of December 2005 and enabled same-sex couples to register as civil partners and enjoy similar legal and financial protections as marriage (which wasn’t available to same-sex couples at the time). 

When it comes to estate planning, marriage provides many tax advantages which can be utilised by couples when dealing with the distribution of their estates. Prior to the Civil Partnership Act, same-sex couples were barred from such benefits. 

Here are just four of the ways in which the Civil Partnership Act has changed this position for the better for same-sex couples:

1. Gifts to a civil partner are not subject to Capital Gains Tax

Capital Gains Tax is payable on any transfers of assets which have increased in value during a person’s ownership. Prior to the Civil Partnership Act coming into effect, all gifts between same-sex couples would have been taken into account for Capital Gains Tax purposes. For example, if a person purchased a painting in 1995 for £5,000 but then in 2000 the painting was worth £50,000, Capital Gains Tax would be payable if the person wished to gift this painting to their same-sex partner in the year 2000. 

However, following on from the Civil Partnership Act, any transfers between civil partners became exempt for Capital Gains Tax purposes. Gifting between couples is often an effective tool when considering estate planning options.

2. Protection for Civil Partners where one has passed away without a Will

Where a person passes away and does not leave a Will, their assets are distributed in accordance with the Intestacy Rules. These statutory rules set out who is entitled to deal with a deceased’s estate and who is entitled to benefit from the same. 

Prior to the Civil Partnership Act coming into force, if a member of a same-sex couple passed away without a Will, their estate would not pass to the surviving partner. Instead, it would be distributed between the deceased’s relatives. 

The Civil Partnership Act amends this position by giving civil partners the same rights as married couples under the Intestacy Rules. Since this time, whenever a civil partner passes away without a Will, the surviving civil partner will inherit all (or a portion of) the deceased’s estate. 

3. Civil Partners are exempt from Inheritance Tax

Currently, if a deceased person has assets in excess of £325,000, then Inheritance Tax will be payable at a rate of 40% (unless there are any other exemptions or reliefs available).

Married couples are exempt from Inheritance Tax. Prior to the Civil Partnership Act, if a member of a same-sex couple passed away and left their estate to their surviving partner, then the value of their estate would be considered for Inheritance Tax purposes.  

The Civil Partnership Act has amended this position and now provides that any assets left to a surviving civil partner on death will pass free of Inheritance Tax.

4. A surviving Civil Partner can utilise any unused Nil-Rate Band Allowance

As set out above, if a person has assets less than £325,000 in value, then there is no Inheritance Tax to pay. This is known as the Nil-Rate Band Allowance.

Under the Civil Partnership Act, if a civil partner has passed away and has not utilised their Nil-Rate Band Allowance (e.g. because they have left their inheritance to the surviving civil partner), then the unused amount can be added to the surviving Civil Partner’s own Nil-Rate Band Allowance. 

This is a benefit which is often utilised for estate planning as it means that if all assets are passed to the surviving civil partner/spouse, then on the death of that surviving civil partner/spouse, they are able to utilise their own and the deceased’s full Nil-Rate Band Allowance and leave assets up to £650,000 without paying Inheritance Tax.

Summary

Estate planning is an important matter for couples to consider to ensure that their assets are dealt with in accordance with their wishes and in a tax-efficient manner. 

The importance of the Civil Partnership Act is that it meant that same-sex couples were treated more fairly by being able to utilise advantages enjoyed previously by only married couples. It was therefore an important point in legal history for same-sex couples. 

The Marriage (Same Sex Couples) Act 2013 extended marriage to include same-sex couples.  However, many people still choose to proceed with registering civil partnerships. From the 31 December 2019, opposite-sex couples are also able to register as civil partners and enjoy the associated benefits. 

If you and your civil partner or spouse would like to consider estate planning options to ensure that you are dealing with your assets in the most tax-efficient way on your death, contact our experts who will be happy to assist.