The Civil Partnership Act gives same sex couples in the United Kingdom the opportunity to obtain similar legal recognition as married couples in all aspects of family, finance and tax. The Act came into force on the 5 December 2005 and allows the formation of civil partnerships from 21 December 2005. This guide addresses the issues which prospective civil partners should consider. A same sex couple thinking about entering into a civil partnership should consider these issues before they enter into the partnership and, where appropriate, obtain legal advice and make the necessary legal arrangements.
- 1. Process of registration
You can register a partnership in a Registry Office or at any other premises licensed to carry out registrations, but not at religious premises. The first step is for each of you as the prospective civil partners to give written notice to your local authority of your intention to register your partnership. The notice must include names, ages, details of previous partnerships or marriages, confirmation of nationality and evidence that you have both lived in England and Wales for at least the last seven days. You must then wait for 15 days while the notice is published, and during that time any person may file an objection. To form your civil partnership you must sign the Civil Partnership Schedule in the presence of each other, the Registrar and two witnesses, and once this is done the partnership is formed.
- 2. Pre-registration agreements
A pre-registration agreement is a document setting out what is to happen in the unfortunate event that your relationship is dissolved. It is similar to a pre-nuptial agreement for married couples. It should not be confused with “civil partnership agreement” which is simply a reference to the intention to register a civil partnership, i.e. an “engagement”. Like pre-nuptial agreements, pre-registration agreements are not currently binding under English law. However, the courts are increasingly taking pre-nuptial agreements into account and it is anticipated that they are more likely to do so with pre-registration agreements. You ought to consider whether you should enter into a pre-registration agreement with your partner setting out how assets should be divided in the event the relationship breaks down. This should be considered well in advance of the registration of the partnership and with both of you having had the benefit of legal advice.
- 3. Change of name
Once your civil partnership is registered you may want to consider taking the surname of your partner. Government departments and agencies, like for example the passport agency and DVLA, will accept a civil partnership certificate as evidence to change your name.
- 4. Children
Where one or both of you already has a child or children, or where a child is born to one party of the relationship, you can now enter into an agreement whereby the non-parent partner can obtain parental responsibility following registration of your civil partnership. Further, from 30 December 2005 same sex couples are able to adopt under the Adoption and Children Act 2002.
- 5. Property ownership
Once you have decided to register your partnership, or even if you have decided not to, it is a good time to review your property ownership if you are already living together or are about to begin doing so. If you already share a property it is important to establish how you currently own it and to decide how you are to own it once your partnership has been registered. You can hold property jointly in two different ways:
- You could own your property as joint tenants. This means that on the death of one partner, the property will pass automatically by survivorship to the other. This may cause problems if one partner has children or other relatives they wish their share of the property to pass to. This method of holding property is also inflexible if you wish to hold the property in unequal shares.
- Alternatively you could own your property as tenants in common. Under this arrangement you can hold the property in equal or unequal shares and. On the death of the first partner, their share will not pass automatically to the surviving partner but instead under the terms of their will. This form of ownership may be more advantageous for inheritance tax planning purposes (see below).
It is important to note that if your partnership is dissolved, the way in which you own the property will not necessarily dictate what shares you will receive on dissolution. However if you are not in a registered civil partnership and live in a property owned by you and your partner, you will not necessarily have a right to a share of the property if your relationship breaks down. It is therefore crucial to ensure that your position and your rights are clearly established.
- 6. Wills
It may be that you will be coming to the partnership having already made a will. If this is the case, the effect of registering your partnership will be to invalidate your will. You will therefore need to draw up a new Will as soon as possible.
You can make a new Will before your partnership is registered. If you make a will before and you would like it to remain valid following registration of your partnership you need to expressly state that in your will.
If you do not make a will, your estate will pass under the statutory intestacy rules which determine who should benefit from your estate in the absence of a will.
The intestacy rules may follow your general wishes but the following example demonstrates why it is usually much better to make a will.
If a deceased partner does not make a will and has parents or siblings who survive them, the intestacy rules provide that the surviving partner will get a legacy of £450,000 and the right to receive income from half of the balance of the deceased partner’s estate for life. That half share will ultimately pass to the parents or siblings who will also inherit the remaining half share of the deceased partner’s estate.
If the deceased partner has children, the surviving partner will get a smaller legacy of £250,000, and a trust interest in 50%, and the remainder of the deceased’s estate will pass to the children at 18.
If a will fails to provide adequately for someone, that person may have the right to make a claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975. The categories of people who can make a claim under the Act include people who are financially maintained by, or dependant on, the deceased, infant children and co-habitees. Surviving spouses have an enhanced right to provision under the Act compared to other categories of applicants, and that enhanced right will be shared with surviving registered civil partners.
- 7. Personal taxation
- (1) Inheritance tax
An individual in the UK is subject to inheritance tax on death at a rate of 40% on the value of their estate in excess of the nil rate band (currently set at £325,000). The nil rate band is charged to tax at a rate of 0%.
Civil partners will have the benefit of the same inheritance tax exemptions as married couples. This means they will be able to make lifetime gifts to each other and transfers of assets to each other on death exempt from inheritance tax.
For further information please read Quickpoint entitled ‘Inheritance Tax’.
- (2) Capital gains tax
Capital gains tax is payable on gains you make. It is a complicated tax and the rules need to be considered carefully before a disposal to ensure that you are aware of the consequences.
So far as your main residence is concerned, no capital gains tax is due on gains made when you sell it. If you own more than one property between you, once your partnership is registered, you will only be able to have one of your properties as your main residence. This means that upon the sale of the second property capital gains tax may be payable.
If you own more than one property you should consider advice on nominating which property should be your principal private residence for capital gains tax purposes.
Transfers between partners whether by gift or otherwise will be on a ‘no gain no loss’ basis and will not attract a charge to capital gains tax. If you are considering transferring assets between you, you ought to consider waiting until your partnership has been registered.
As civil partners you will be regarded as ‘connected’ for capital gains tax purposes to each other and to close relatives of each other. This may have unexpected tax results, and we can advise further if required.
- (3) Income tax
Income tax savings measures may be a consideration where one of you is a higher rate taxpayer. It might make sense to transfer interest and dividend bearing investments into the name of the lower rate taxpayer so that the tax on dividends and interest is payable at the lower rate.
Civil partners who were born before 6th April 1935 will also have the benefit of the ‘married person’s allowance’, which ranges from £5,905 to £5,975 depending on age and earning restrictions.
- (4) Trusts
Special anti-avoidance rules apply where a person sets up a trust for which his civil partner can benefit. That person will be taxed on the trust’s income and gains even if he cannot himself benefit. The effect on existing trusts one of you has made for the other following the registration of your civil partnership should be review urgently.
- 8. Pensions
Depending on the terms of your pension scheme, your pension provider may make a lump sum payment on death. Often these lump sums can be written in trust for the benefit of certain recognised individuals. This has the effect of diverting the lump sum from your estate on death and free of inheritance tax.
Some pension schemes do not pay out to unmarried couples when a member dies. Once a partnership is registered, civil partners may now be recognised as beneficiaries of pension schemes which do not recognised unmarried partners.
You must check the terms of your particular scheme to see how the rules on lump sums and surviving partners apply to your partnership.
- 9. Benefits
If you receive state benefits, you should check the effect of entering into a civil partnership. For means testing purposes, your partner’s assets and income may be to be taken into account once your partnership is registered.
There are special rules for tax credits. From 5th December 2005 all single tax credit claims by civil partnerships ceased to be valid. Tax credit claimants must now report their status to the Revenue. Joint claims can only be made by a couple who live together whether as a civil partnership or not.
Civil partners will have access to bereavement benefits which can be paid in the event that one of your dies and you do not have much money coming in following the death of your partner.
- 10. Insurance
A life policy written by you for your civil partner will not form part of your estate once your civil partnership has been registered.
As a civil partner you will have what is called an ‘insurable interest’ in each other’s lives. This may have tax planning benefits and you should review your insurance arrangements.
You should also check that your civil partner can benefit under your employer’s death in service scheme and, if necessary, put in an appropriate nomination in your partner’s favour.
- 11. Businesses
- (1) Business asset valuation
When valuing business assets it is important to consider that your share of a business may be more valuable for tax purposes where your partner also owns a stake in the business and together your holding will give you ownership or a controlling share in the business.
- (2) Corporation tax
Where you and your partner own separate companies, the registration of your partnership could cause the Inland Revenue to view the companies as associated. Unassociated small companies pay a reduced rate of corporation tax and this may be affected.
- 12. Lasting powers of attorney
You should consider making a lasting power of attorney appointing an attorney to deal with your financial affairs generally or in the event that you lose or are considered to be losing your mental capacity.
You can now also make a lasting power of attorney in respect of your personal welfare, allowing you to appoint someone to make decisions on your behalf in relation to personal matters including decisions regarding medical treatment.
In relation to decisions about your welfare, the person you appoint can only act if you are not capable of making that decision for yourself and they must make decisions in your ‘best interests’. A person appointed under a Lasting Power of Attorney can only make decisions regarding life sustaining treatment if they are specifically authorised to do so under the power.
- 13. Medical treatment
There is no legal definition of next of kin but often in the context of consenting to medical treatment, and if you have not made a welfare lasting power of attorney or a Living Will, a hospital will look to those people or person who is regarded as next of kin to make decisions and consult with them in relation to the patient. Next of kin are commonly regarded as a patient’s spouse or blood relative and will include registered civil partners.
- 14. Relationship breakdown
It is possible for a civil partnership to be “dissolved” on the ground of irretrievable breakdown which can be proved by:
- unreasonable behaviour,
- two years’ separation and consent,
- five years’ separation, or
Although adultery is not a ground, inappropriate sexual behaviour with a third party could form the basis of an unreasonable behaviour petition. The process for the dissolution is very similar to that for divorce and the partnership must have been registered for at least one year before it can be dissolved.
In the event of a breakdown of the relationship, the parties will have similar financial claims to those of married couples. This will include claims for maintenance, property adjustment, capital and pension sharing orders.
The position with children will be considered in the same way as any other relationship breakdown. The emphasis is on ensuring that an amicable solution is reached if at all possible. However, if this is not possible, the Courts will consider what arrangements are in the best interests of the children under the Children Act 1989.
Civil Partnerships - A Guide
The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.