What Are The Tax Implications Of A Civil Partnership?

Following the recent "win" in the Supreme Court for heterosexual couple Rebecca Steinfeld and Charles Keidan, the idea that a civil partnership could be available to heterosexual couples, as well as same sex couples, is looking evermore likely. Aside from removing the 'negative connotations' of marriage (the reason that Rebecca and Charles began their legal battle), but still providing a way for couples to commit to one another in a formal and legal way, there are other benefits which may sway some people into considering a civil partnership. One of these is that there are significant tax savings to be made by a couple who are married or in a civil partnership that cohabitating couples simply don't qualify for.

Advantages

Despite the fact that a cohabitating couple are treated the same as a married couple when assessing eligibility to means tested benefits, the same treatment is not afforded when it comes to the tax allowances that civil partners and spouses receive.

Income Tax

People who live together are taxed separately and each person has their own personal allowance entitlement. Couples who have entered into a civil partnership or a marriage however, are entitled to a Married Couples Allowance which allows for unused Personal Allowance of up to £1,190 to be transferred to their spouse or civil partner if they earn more.

Capital Gains Tax

Transfers of assets between cohabitees are subject to Capital Gains Tax. However, a spouse or civil partner does not have to pay Capital Gains Tax on the transfer of assets between them because they are able to claim spouse exemption, provided that they are living together.

Inheritance Tax

Inheritance Tax is where a civil partnership or marriage can be seen to have the most significant impact. Assets left by one spouse or civil partner to their surviving spouse or partner are not subject to Inheritance Tax because, again, spouse exemption can be claimed. Where one spouse/ partner is not domiciled in the U.K there is a limit to this exemption, but where both spouses/ partners are domiciled in the U.K then there is no limit to this exemption. By contrast, cohabitating couples who are unmarried and not in a civil partnership will have to pay Inheritance Tax on everything over the Nil Rate Band (currently at £325,000) passing to their cohabitee. Married couples and civil partners can transfer their unused allowance to be used on the second death, as well as transferring...