Tax treatment for civil partners and married couples
As with heterosexual married couples, civil partners or same sex spouses are entitled to the same tax perks and drawbacks.
Tax benefits include:
- Entitlement to married couples’ allowance
- Availability to transferrable nil rate band for IHT
- Spousal exemption for IHT
- Transfers at nil gain /nil loss for CGT
Tax drawbacks include:
- Civil partners and married couples are only entitled to one principle private residence.
- They also need to pay the 3% supplement for SDLT (4% for LBTT or LTT) if one of the couple already owns a residential property.
- Being married or in a partnership can also impact on tax credits.
In general, it appears that references to a spouse or married couple have been updated to include civil partners.
Complications will arise when it is necessary to consider children and factor in definitions provided within legislation and who would be included as a parent.
What if there is no father?
Domicile is a common law concept, which identifies three types; domicile of origin, domicile of dependency, and domicile of choice.
Domicile of origin is given at birth and generally provides the individual with domicile of the country where their father was born. This may not necessarily be the country in which the child was born. The father being the factor for domicile of origin is reinforced within the legislation, general guidance, as well as in published articles.
The HMRC manuals state that the domicile of origin will be that of the mother where there is no father. In cases where a child is adopted, the domicile of origin for the child will change to that of their adopted father or mother (if there is no father).
Statutory Residence Test (SRT)
Introduced in April 2013, the SRT allows individuals to determine their residence status for a tax year by considering the days spent in the UK and UK ties. The SRT is split into three parts, which should be worked through in order.
An individual who does not meet the first two tests will need to consider if they have sufficient ties to the UK. Having a family in the UK can be considered a tie for an individual to the UK. A family member of an individual can include:
- A spouse or civil partner (not separated),
- A partner if they are living together like husband and wife or as civil partners or
- A child under the age of 18.
The legislation provides several definitions of how the family tie can be applied, however, it fails to define who would be considered to be the parent of a child under the age of 18. Where such definition is not provided, it would be necessary to consider the common law definition.
Under common law, a legal parent will be determined depending on whether the child was legitimate or illegitimate. It is necessary to also factor in definitions of legal parents determined by meeting the parenthood conditions which was introduced within the Human Fertilisation and Embryology Act 2008. HMRC provides an overview of who has parental responsibility.
It will be necessary to consider whether the family tie is met over having a child under the age of 18 if the individual parent has not been registered on the child’s birth certificate, and if the parental responsibility agreement has not been signed. This could be considered advantageous, however, it is unlikely to be an area that would be misused.
How would HMRC be able to determine if an individual has a child?
Residence nil rate band
Introduced in 2017, the residence nil rate band (RNRB) is an allowance available on deaths occurring on or after 6 April 2017. The allowance is given in addition to the nil rate band (currently £325,000).
However, the RNRB only applies where the estate includes a ‘home’ which is inherited by:
- A lineal descend ant (child, grandchild, great-grandchild etc) of the individual who died, or
- The spouse or civil partner of a lineal descendant at the deceased’s date of death, or
- A person who was the spouse or civil partner of a lineal descendant, but the lineal descendant died before the death of the deceased, and the surviving spouse or civil partner has not subsequently married or entered into a new civil partnership.
The legislation (IHTA 1984 s8K) has provided a definition to determine whether a property has been closely inherited. A child can include those who are adopted or fostered, and where the individual was appointed a special guardian over the child.
When considering the child, it is important to also consider the common law definition and whether there is a parental responsibility agreement in place.
Prior to the change in the law change (see box), same sex couples with children could not both be recognised as parents. Following the legal change, the parent previously not recognised would need to either adopt or enter into a civil partnership or marriage with the parent so the child can be treated as their stepchild.
If either is not possible, it is unfair that the relief would not be available and perhaps this should be challenged by considering all factors of the family set up.
Non-binary
This is where an individual identifies themselves as not falling within either male or female gender. The title ‘MX’ is an alternative to Miss, Ms or Mr. Countries such as India, Pakistan, Germany and New Zealand allow their citizens to identify as neither male nor female. Currently, there is no official recognition of the identity in the UK, although many places provide the option to identify as MX.
Without non-binary being identified as a gender, couples may resist entering into a marriage or civil partnership. Those couples are unable to access the security, tax reliefs, allowances and exemptions that married couples and civil partners are able to benefit from.
Gender recognition certificate
Since 2005, it has been possible for an individual to apply and legally change gender from male to female or female to male. There are many processes required to apply for the certificate and fees at each stage. Studies highlight that the process is intrusive, humiliating and administratively burdensome.
The hurdles faced in applying for such a certificate may leave many to avoid legally changing their gender and perhaps also avoid entering into a marriage or civil partnership.
What needs to change
An intervention is necessary to keep the law in line with today’s society. Legislation needs be updated to ensure individuals are not directly or indirectly excluded, discriminated against or offended with outdated terminology and references.
Whilst the revenue manuals on domicile of origin have considered situations where there may not be a father in the picture, the legislation still defines domicile of origin as based on the father. The SRT and residence nil rate band are examples highlighting gaps within the legislation where LGBT+ families have not fully been considered.
Advisers will need to gather appropriate information on clients to better inform themselves on family status.
Key legislation for LGBT+ people in the UK
4 April 2005: Gender Recognition Act 2004 introduced in the UK. This allows people who have gender dysphoria to change their legal gender.
5 December 2005: Civil Partnership Act 2004 introduced in England and Wales. Same sex couples can form a legally recognised relationship.
30 December 2005: Adoption and Children Act 2002 gave unmarried couples, including same sex couples, the right to adopt. If you are a same sex couple you do not need to be in a Civil Partnership or married to adopt.
6 April 2009: Same sex partners can be included on a birth certificate.
29 March 2014: Marriage (Same Sex Couples) Act 2013 ensured that marriage is open to everyone not just heterosexual couples.
