Over recent years, same sex couples have seen a significant increase in the rights and benefits they receive in today's community. Although the UK was somewhat behind the first country to legalise same-sex marriage for gay and lesbian couples,(the Netherlands in 2001
), the implications of doing so can only be beneficial for the UK and it's economy going forward.
This is evident from the passing of the Civil Partnership Act 2004
which enabled same sex partnerships to have the same rights as opposite-sex couples. This came into force in the UK on 5 December 2005.
Further to this, in March 2014, the UK Coalition government legalised same-sex marriage
According to the Prime Minister, David Cameron, legalising same-sex marriage was "an important moment for our country (the UK)", and "no matter whether you are straight or gay - the State will recognise your relationship as equal."
With this in mind, we look at the increasing rights in terms of tax available to same-sex couples in today's world.
Income Tax for Gay and Lesbian Couples
The usual tax free personal allowance exists for all individuals (£10,600 for 2015/16).
As a same sex couple, there is now the possibility of you being able to transfer £1,060 of your personal allowance to your partner under HMRC's new 'Marriage Allowance
This is as long as the following apply:
- Your partner's income is beween £10,601 and £42,385.
- You and your partner were born on or after 6 April 1935 (if you or your partner were born before this, then the Married Couples Allowance can apply instead, see below).
The effect of this is that your partner will pay £212 less tax. Your Personal Allowance however will be reduced to £9,540.
Married Couples Allowance (MCA
) can reduce your tax bill by between £322 and £835.50 a year if:
- You are in a civil partnership,
- You're living with your civil partner,
- One of you was born before 6 April 1935.
Other areas of Income Tax which may be beneficial would be the possibility of transferring any unused Blind Person's Allowance (if applicable
) to your partner.
National Insurance Contributions (NICs)
As with opposite sex couples, the rules are the same for same sex couples.
When you reach State Pension Age (currently 65 for men), you will stop paying NICs. This however is likely to increase over the coming years as the demographic of the UK continues to become an ageing population.
There are also plans to equalise the state pension age for both men and women.
NIC contributions will affect your ability towards the State Pension, which is dealt with below.
Inheritance Tax (IHT)
Just like opposite sex couples, if a partner in a same sex couple in a civil partnership dies, whatever they leave to their surviving partner will be free of IHT.
If however if you are not in a civil partnership, then only the first £325,000 of the deceased estate will be free of IHT. An estate in excess of this will be subject to IHT.
On the flip side, if a partner in a civil partner does not use up the full £325,000 IHT 'tax free' amount, then the remaining unused amount can be transferred to the surviving partner and therefore potentially increasing the surviving partner's estate of up to £650,000 to be free of IHT.
Capital Gains Tax (CGT)
Every individual will receive a tax free annual exemption allowance for CGT purposes. This figure (for the 2015/16) currently stands at the first £11,100 of Capital Gains being free of tax.
One of the biggest benefits of being recognised as partners in a civil partnership is that any transfer (or sale) of assets between partners is free of CGT.
This is what is known as a No Gain No Loss Transfer, and in some circumstances can be an extremely useful tax planning tool.
Another significant CGT benefit for same sex partners is the availability of Private Residence Relief (formerly known as Principle Private Residents (PPR) Relief). As long as the property that is disposed of is your only and main residence, then the whole gain associated with this disposal will be free of any capital gains tax.
So long as you have 30 qualifying years of NI Contribitions, when you reach retirement age, you will receive the full State Pension.
This currently stands at £115.95 per week.
If you have fewer qualifying years of NI Contributions, your entitlement will be apportioned accordingly. You can contact HMRC
to check how many qualifying years of NI contributions you have made to date.
However, you may be able to improve what you are entitled to by using your civil partner's NI record. This is so long as they were born on or after 6 April 1950 and as long as they are over the State Pension Age.
Additionally, if your civil partner dies, you may be entitled to inherit part of their state pension.
Just like opposite sex couples, various government tax credits are available to same sex couples.
Working Tax Credits (WTCs) are available if:
- You are 25 or over,
- On low income, and work at least 30 hours a week,
- You are disabled, 16 and over and work at least 16 hours a week.
Child Tax Credits (CTC) is payable if you are responsible for at least one child. This is regardless as to whether you are working or not.
With growing equality and recognition of same-sex couples and civil partners in today's society, it is important to understand what you are legally entitled to in order to minimise your tax liability and optimise your tax position. Wisteria's Tax Team are here to help if you need have any queries or would like to arrange a call or meeting