Civil partnerships are to be extended to heterosexual couples. Now siblings, who have spent their adult lives living together, also want civil partnerships. Is this a case of the tax tail wagging the dog?
Why do siblings want civil partnerships?
The main driving force is inequality in many areas. Clearly one of the biggest issues has to be tax and inheritance.
Cohabitees are treated less favourably under intestacy rules if one of them dies without leaving a Will. Wills are so important! A word of warning for people planning marriages/civil partnerships – a marriage/civil partnership voids any existing Will so, please write a new one.
This blog doesn’t cover all the ways married couples/civil partners are taxed differently to cohabitees. It is just to make people think.
So what is the fuss?
All categories of couples can be exposed to inheritance tax but siblings/cohabitees are more likely to be exposed earlier. This can have an adverse impact on the survivor’s lifestyle.
Many married couples/civil partners don’t like to face the tax liability on second death and often take advice to reduce their exposure. Siblings can also plan to reduce their exposure to IHT. It isn’t quite as easy for them as it is for spouses/civil partners who have more favourable tax exemptions, but it is possible.
Are all things equal?
A couple of years ago there was discussion of a new inheritance tax threshold being introduced of £1m. Instead we got a new residence nil rate band relief. In certain circumstances, where you leave your home to your children, you can leave an extra £175,000 of value per parent inheritance tax free. The actual legislation is more complicated than that and is still being phased in, so always seek advice. The point to note here though is that, this surely discriminates against married couples/civil partners who don’t have children.
What is the problem?
The bottom line is the tax legislation is so complex. There are always losers and winners. When I started working in practice many years ago the legislation books consisted of a direct tax book and an indirect tax book. Now the direct tax books arrive in a box as there are 5 or 6.
What is the solution?
Tax simplification has been ongoing for a while now but still seems to be like the pot of gold at the end of the rainbow. Long term tax planning is very important whether married, in civil partnership, cohabiting, with children or without children. If you have an inheritance or any other tax issue, then please seek advice from a suitably qualified person.