Marriage is considered by some to be too traditional and patriarchal for the 21st century. Until now, the only other option for mixed-sex couples in England and Wales who do not believe in the institution of marriage was to co-habit, which brings none of the tax advantages of marriage.
By contrast, since 2004, same-sex couples have had the choice between marriage and civil partnership. Campaigners have argued that civil partnerships are a more egalitarian model better suited to modern life and should be open to all couples, be they same-sex or mixed-sex.
From 2 December 2019, civil partnerships have been available to everyone who wants to commit to their partner but feels that marriage is not right for them. Not only that, civil partnership status also affords legal and financial protections that are not available to co-habiting couples, which can be especially important when it comes to estate planning.
From an estate planning perspective, the most significant advantage of civil partnerships is the exemption from inheritance tax on assets which pass to a surviving civil partner, in the same way that there is a spouse exemption for married couples (although the exemption can be restricted where one civil partner or spouse is not domiciled in the UK). This is an extremely valuable exemption that may, for example, prevent the sale of the family home to pay inheritance tax. Married couples and civil partners may also take advantage of each other's transferable nil rate band and residence nil rate band.
In contrast, cohabiting couples who are unmarried and not in a civil partnership are subject to inheritance tax on the value of all assets over the nil rate band (currently £325,000) passing to their cohabitee which may result in serious financial consequences for the surviving partner. Assuming, that is, that there is a will in place which makes provision for the surviving partner in the first place.
Nearly 60% of adults in the UK do not have a will. If a person who is married or in civil partnership dies without a will and without children, their entire estate will pass automatically to their spouse or civil partner under the rules of intestacy. If they have children, their spouse or civil partner will receive the first £250,000 (and the personal belongings) and half of the remainder of the estate. A cohabitee would inherit nothing, apart from jointly held assets, regardless of how long they lived with their partner and their only option would be to make a claim for financial provision against their deceased partner's estate.
The rules of intestacy may provide a small amount of comfort to civil partners and spouses (though provide no comfort to cohabitees), but it is still important to take advice and make a will which reflects how you wish your estate to be inherited, especially if there are children as the intestacy rules could lead to an unnecessary inheritance tax charge if assets pass to the children on the first death. Wills should be reviewed on a regular basis, particularly in the context of major life events. Mixed-sex couples who intend to take advantage of the new civil partnership status must remember that doing so will revoke any existing will they have, unless it was made in contemplation of the civil partnership. If they do not make a new will then the intestacy rules will apply on death.
It is not just legal and financial protection on death that need to be considered. The transfer of assets between civil partners during their lifetimes is tax free, just as it is between spouses. There are many reasons why couples who have lived together for a long time may want to transfer assets to each other but a cohabitee who is not married or in a civil partnership would have to pay capital gains tax on a transfer of assets to their partner, and this would be treated as a lifetime gift for inheritance tax purposes too.
As my colleagues in the family team at Withers point out, from a financial perspective, whilst civil partners are treated in a similar way to spouses on divorce such that a married or civil partner has the right to make claims for financial provision on divorce or dissolution, a cohabitee will have no such rights and will be limited to making claims against property based on complex and costly trust law. Careful consideration should therefore also be given to whether it is advisable to enter into a pre- or post-civil partnership nuptial agreement before entering into a civil partnership, in the same way as entering a pre-nuptial or post-nuptial agreement for a marriage.
The introduction of civil partnerships for mixed-sex couples is an important step towards equality, affording legal and financial protection for all couples who wish to make a formal commitment but who do not want to marry. There have been calls for civil partnerships to be extended to siblings and friends to afford them the same tax benefits and legal protections. This could apply, for example, to adult siblings who have lived together all their lives who may be forced to sell their home to pay inheritance tax. However, only time will tell how far reaching the scope of civil partnership status will become.