The Civil Partnership Act came into force on 5 December 2005 and from that date same-sex couples are entitled to enter into partnership, comparable to marriage, by registering their relationship with local government after completing various pre-registration formalities.

The purpose of this note is to raise various issues relating to tax planning and wills that arise as a result of entering into a Civil Partnership.

Wills and succession issues

Any will made prior to entering into a Civil Partnership is automatically revoked by law once the partnership is registered, unless the will contains a statement that it is specifically made in contemplation of entering into a Civil Partnership. If you are considering entering into a Civil Partnership, you should therefore review your will and make a new one.

If you do not have a will after entering into a Civil Partnership (or your previous will is revoked by entering into one), then the following provisions will apply:

1. any property held with your partner as joint tenants will pass automatically to the surviving partner
2. any property held in your name (and property held with your partner as tenants in common) will be subject to the statutory intestacy provisions, namely, the surviving partner receives:

• Your personal effects
• £450,000 (or £250,000 if you have children)
• 50% of any balance over this sum (or only the income on this amount if you have children) :

If you have not made “reasonable” provision for your Civil Partner in your will then your partner will be able to apply to the Court for further provision to be made. What is considered reasonable depends on the size of your estate, as well as your partner’s own financial position in relation to your other beneficiaries and would ultimately be decided by the Court.

Taxation

Inheritance Tax

Making a will is often a good time to consider your inheritance tax position. Inheritance tax becomes payable on assets in excess of £325,000 and Civil Partners now have available to them the inheritance tax reliefs that were previously only available to spouses, namely that (subject to domicile) no tax is charged on any transfer between Civil Partners.

Capital Gains Tax

Civil Partners are also no longer subject to a capital gains tax charge on transferring their assets between them. This means that any transfer of assets to your partner does not give rise to a tax charge.

There is, however, also a disadvantage. Where a couple own two separate residences and each is nominated as the “principal private residence” for capital gains tax purposes there is a potential problem. On entering into a Civil Partnership, both partners must choose one principal private residence between them. The other will then be a “second home” and any gains on sale will potentially be liable to capital gains tax. There are ways to reduce this liability which we would be happy to explore with you.

Income tax

The availability of the capital gains tax relief also makes it much easier to equalise your estates as far as income tax is concerned, and affords the opportunity for further tax planning. If one partner is a higher rate income tax payer and the other pays only basic rate tax, then savings and investments can be transferred into the lower rate taxpayer’s name to ensure it is taxed at only the lower rate.

Again, there are ways to reduce this liability which we would be happy to explore with you.

Corporation Tax

If you and your partner both have shares in a private company then entering into a Civil Partnership could dramatically increase the tax on the company’s profits. It could also result in an increase in the taxable value for inheritance tax purposes of your respective holdings.

If Civil Partnerships go wrong…

Civil Partnerships are very similar in nature to marriage. This means that on dissolution of the partnership financial provision will have to be made in the same way as in divorce proceedings. If you are concerned about what might happen if things go wrong, you should consider making a “pre-nuptial” agreement to try to protect your respective assets and govern what is to happen in the event of a relationship breakdown. Although such an agreement may not be legally enforceable, it is likely to be highly persuasive, especially in light of recent developments.

This briefing is intended to be a summary only of important points to consider when considering entering into a Civil Partnership and is intended to raise your awareness of the potential issues involved. It is not intended to be an exhaustive or definitive review of the subject and is not a substitute for professional advice. We will be happy to discuss your personal situation with you (and your partner) and give you informed, appropriate advice suited to your circumstances.