What does the civil part­ner­ship rul­ing mean for per­sonal fi­nances? / At­ten­tion! Your state pen­sion is about to re­ceive a wel­come boost

We ex­am­ine the fi­nan­cial im­pli­ca­tions of this move

Shares - - CONTENTS DISCLAIMER - Laura Suter, per­sonal fi­nance an­a­lyst, AJ Bell

The Gov­ern­ment has pro­posed to let mixed­sex cou­ples have a civil part­ner­ship as an al­ter­na­tive to get­ting mar­ried.

At the mo­ment het­ero­sex­ual cou­ples can only get mar­ried, while same-sex cou­ples have the op­tion of ei­ther mar­riage or civil part­ner­ship.

A num­ber of mixed-sex cou­ples had cam­paigned for the right to en­ter into a civil part­ner­ship – feel­ing that they didn’t want to en­ter into mar­riage for his­tor­i­cal, re­li­gious and gen­dered rea­sons.

So what does the po­ten­tial rule change have to do with fi­nances?

Es­sen­tially it means those peo­ple who didn’t want to get mar­ried will soon be able to ac­cess many fi­nan­cial ben­e­fits. Cou­ples who live to­gether but re­main un­mar­ried are not recog­nised by law, which has a big im­pact on many ar­eas of their fi­nances.

For those who are liv­ing to­gether and are un­mar­ried, this ar­ti­cle pro­vides a list of ben­e­fits of ei­ther get­ting mar­ried or en­ter­ing into a civil part­ner­ship.

MAR­RIAGE AL­LOWANCE This al­lowance lets mar­ried cou­ples or those in a civil part­ner­ship pass un­used tax-free per­sonal al­lowance be­tween each other – un­der cer­tain cir­cum­stances. It means a spouse or civil part­ner who doesn’t pay in­come tax can trans­fer up to £1,190 of their per­sonal tax-free al­lowance to their part­ner – net­ting a £238 tax sav­ing in a year.

One half of the cou­ple must earn less than £11,850 a year, while their part­ner must be a ba­sic-rate tax­payer. What’s more, if you haven’t claimed this al­lowance for pre­vi­ous years you can back­date your claim to 5 April 2015 for any years you were el­i­gi­ble.

IN­HER­I­TANCE TAX This is the big dif­fer­ence for those en­ter­ing a civil

If some­one who is liv­ing with their part­ner but is un­mar­ried/not in a civil part­ner­ship dies with­out a will, there is no pro­vi­sion made for their part­ner. This means that with­out a will be­ing drawn up, the sur­viv­ing half of the cou­ple can end up with­out any of their part­ner’s as­sets

part­ner­ship, who hadn’t wanted to marry. Un­mar­ried cou­ples can­not share in­her­i­tance tax ben­e­fits, while those who are mar­ried and in civil part­ner­ships can.

Mar­ried cou­ples or those in civil part­ner­ships can leave all of their as­sets to each other when they die, and it will be free of in­her­i­tance tax (IHT). What’s more, they can pass their in­her­i­tance tax free band of £325,000 to each other. This means that when the sec­ond half of the cou­ple dies they can leave an es­tate of up to £650,000 free of in­her­i­tance tax.

If you are un­mar­ried, any trans­fers to your other half will count to­wards your IHT-free limit, and any­thing in ex­cess of that amount will be sub­ject to in­her­i­tance tax.

TRANS­FER­RING SAV­INGS OR CAP­I­TAL GAINS

Mar­ried cou­ples or those in civil part­ner­ships can trans­fer money be­tween them­selves much more eas­ily than co­hab­it­ing cou­ples. This means they can move as­sets to the per­son in the cou­ple who has not used their tax-free al­lowance or who pays the low­est tax rate, po­ten­tially sav­ing them money if they re­alise a cap­i­tal gain.

Every­one has a cap­i­tal gains tax free al­lowance – cur­rently £11,700 – but once this is used up the tax is payable at 10% for ba­sic-rate tax­pay­ers, or 20% for higher or ad­di­tional rate tax­pay­ers (for as­sets other than res­i­den­tial prop­erty). By shift­ing the as­set, and so the gain, to the part­ner who ei­ther hasn’t used their tax-free al­lowance or who is pay­ing lower in­come tax, the cou­ple can save tax.

DEATH AND DI­VORCE

If some­one who is liv­ing with their part­ner but is un­mar­ried/not in a civil part­ner­ship dies with­out a will, there is no pro­vi­sion made for their part­ner. This means that with­out a will be­ing drawn up, the sur­viv­ing half of the cou­ple can end up with­out any of their part­ner’s as­sets.

In the worst case this can mean they have to leave a shared prop­erty. This is also true in the in­stance of di­vorce, as these cou­ples would not be guar­an­teed to have rights to each other’s prop­erty – mean­ing a lengthy court bat­tle could en­sue.

Un­mar­ried cou­ples are not el­i­gi­ble for death ben­e­fits in many pensions, which re­strict pay­ments to spouses or civil part­ners, mean­ing they miss out on sur­vivor’s ben­e­fits. If a cou­ple en­ters into a civil part­ner­ship they will be able to ben­e­fit from most, if not all, of any wid­ower’s pen­sion their part­ner’s pen­sion of­fers.

Mar­ried cou­ples or those in civil part­ner­ships can trans­fer money be­tween them­selves much more eas­ily than co­hab­it­ing cou­ples

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