Are universal civil partnerships good for tax?
5th October 2018
Posted in Articles, Featured Articles, Inheritance Tax, Trusts and Estates, Private Client by Tom Minnikin
Following a June 2018 Supreme Court ruling allowing a mixed-sex couple to have a civil partnership, Prime Minister Theresa May has announced that all couples in England and Wales will be allowed the option to obtain legal recognition of their partnership without having to marry. Theresa May said on Tuesday 2 October: ‘As Home Secretary, I was proud to sponsor the legislation that created equal marriage. Now, by extending civil partnerships, we are making sure that all couples, be they same-sex or opposite-sex, are given the same choices in life.’
In Steinfeld and Keidan v Secretary of State for International Development, the Supreme Court found that the existing legislation, the Civil Partnership Act 2004, was not compatible with the European Convention on Human Rights. Since this decision, family solicitors have pressed the government to extend the right to all mixed-sex couples, arguing that it would give mixed couples and their families greater legal security, including in their rights to inheritance, property and pensions. There are apparently 3.3 million cohabiting unmarried couples in England and Wales.
The tax issues
On a superficial level this looks good from a tax perspective because there are a whole raft of tax benefits which extend to couples who are married or in civil partnerships. The two benefits which spring to mind immediately are:
- Inheritance tax-free transfers between spouses and civil partners on death (you may recall Ken Dodd’s hastily arranged pre-death marriage).
- Assets can be transferred between spouses and civil partners free from the inheritance tax which would otherwise arise.
But on closer reflection is this just a non-issue for tax? Civil partnerships were originally a useful means of same sex couples being able to get on a similar legal footing as mixed sex couples and this was a great step forward for them. Are we really going to see thousands of couples making use of civil partnerships who weren’t going to marry? Why would they do this?
Final word
It is perhaps likely that if a couple does not marry then they will not enter into a civil partnership either and these cohabiting couples will continue to be without rights. Perhaps it would make sense for cohabiting couples to be able to elect into certain tax rights such as IHT-free transfers on death or capital gains transfer exemptions. This is however unlikely to happen because it would take significant resources to operate and could be open to considerable abuse. The Government may take the position that as couples now have the choice of marriage or a civil partnership, there should be something for everyone!
