Civil Partnership For Mixed Sex Couples Opens Up IHT Planning Opportunities

Fifteen years after civil partnerships became available to gay couples, it has been extended to heterosexual couples. This opens up quite a few family wealth and inheritance tax planning opportunities for cohabiting couples wishing to take advantage of the extension of civil partnerships to mixed-sex couples. But first, let’s take a look at the journey and how we got here.

It all began when the Labour government, under Tony Blair, brought in the Civil Partnership Act in 2004. With sustained pressure, the Conservatives brought in same-sex marriage in 2013. That meant that gay couples now had a choice whether to get married or enter into a civil partnership. Both come with exactly the same legal consequences. Civil partners have the same tax, pension and property rights as married couples. It is much more a question of personal preference and the idea that gay couples should not be excluded from marriage if that is their preference.

The arrival of marriage for gay couples created an unfair situation where gay couples had a choice whether to be married or to enter into a civil partnership if they wanted to formalize their union in law, but heterosexual couples did not have that option. They could only choose to be married or not. What’s the problem with that, some may ask? The fact is that there are a lot of people that have a principled objection to marriage and what it stands for. One of those that have taken advantage of the change in law, Dave Shaw, said to the Daily Mail that he and his partner, Deborah Williams did not wish to get married “because of the patriarchal, religious and conservative associations.” It is their prerogative. What it meant was that, as mixed-sex couples, they were excluded from the inheritance, pension and property rights that gay couples in civil partnerships could enjoy.

Angry at being shut out of the opportunity of a civil partnership, Rebecca Steinfeld and her partner Charles Keidan, started a 5-year battled that was to lead them to the highest court in the land. They disagreed with marriage as they felt it treated women as property. Finally, in 2018, the Supreme Court ruled that denying mixed-sex couples the same right to a civil partnership as gay couples was discrimination.  Shortly after that ruling, Theresa May, then Prime Minister, decided to change the law to extend civil partnerships to mixed-sex couples. That law came into force on the 2nd of December 2019 but because of the requirement to give 28 days’ notice, the first civil partnerships for mixed-sex couples could only take place on the 31st of December 2019. Charles and Rebecca were, of course, one of the first couples to take advantage of the new law. She said: “Our personal wish to form a civil partnership was rooted in our desire to formalise our relationship in a more modern way, with a focus on equality and mutual respect.”

With this new dawn, it seems co-habiting couples in the UK (estimated to number up to 3 million) who object to getting married now have the option to enter into a civil partnership to acquire the same rights as married couples. It is estimated that about 84,000 couples will take advantage of this new law this year. Whilst there is great euphoria about this, these couples must now begin to take a new look at their estate planning and to see what change they need to make. They need to redefine their family wealth strategy. Here are some issues that these new, intending and existing civil partners need to be aware of and some of these present some great inheritance tax planning opportunities:

1) If you had made a will previously, your will becomes revoked by your marriage. That means that you have to make new wills as a matter of priority to enable you to introduce some inheritance tax planning strategies.

2) Spouse exemption from inheritance tax is now available to you as a civil partner. This introduces some tremendous inheritance tax planning opportunities that are not available for cohabiting couples. However, most of those opportunities will only be maximised if you make a will, so don’t delay the issue of making a will or a new will, if you already have one.

3) It will give many some comfort to know their civil partner will inherit automatically in the same way as a surviving spouse if they die without making a will. However, you could find there is inheritance tax to pay if you don’t make a will to plan properly, particularly if you have children. Those children will inherit part of the estate automatically, which could lead to inheritance tax being payable on the portion inherited by the children. Making a will gives you the opportunity to arrange things in a way that achieves your objectives whilst making sure there is no inheritance tax charge.  

4) As a civil partner, you now have rights to pension benefits that you did not have previously. You should make sure that lump sum death benefits payable from your pension or life policy are written in trust. This can allow the surviving civil partner to enjoy the proceeds whilst passing them on to the children without it forming part of that survivor’s estate. It does require special provisions in the trust to achieve that, so be sure to get specialist advice.

If you are choosing to remain a co-habiting couple, many of these opportunities are not available to you. However, you should still engage in estate planning to ensure that you use legal agreements to make up for the areas where the law does not give you automatic rights. Central to estate planning for cohabiting couples is a cohabitation agreement, which you can use to set out who owns what proportion of joint assets such as property, bank accounts and investments. Of course, you must remember that making a will is also crucial as the survivor of the couple will not inherit the assets that are not jointly owned. However, if you later decide to get married or enter into a civil partnership, as you now can, it is crucial that you start considering your estate planning even before you do. You can make your will in anticipation of such legal union and it will not be revoked by your union if you say so in the will.

The bottom line is to plan, plan, plan! Get in touch for more information and advice on your own personal circumstances. You’ll be amazed at what you can achieve with foresight and planning.

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