Being civil

Last November the Civil Partnership Act (CPA) became law. Its effect is to give legal recognition to same-sex couples. The Act comes into effect later this year on 5 December 2005 and will allow same-sex couples to make a formal legal commitment by entering into a civil partnership. From the same date the Inland Revenue will treat registered civil partners as married couples for tax purposes.

The main tax implications will be as follows:

• Inheritance tax
  Transfers between civil partners both during lifetime and on death will generally be exempt.
  
  
• Capital gains tax (CGT)
  Main residence exemption will only be available for one property per couple.
  
  Transfers between partners will be on a ‘no gain no loss’ basis and thus not attract an immediate CGT charge.
  
  
• Settlements
  Anti-avoidance legislation that currently applies to spouses will be extended to civil partners. Broadly the legislation prevents the effective transfer of income in certain circumstances from a higher rate taxpaying spouse to one liable at a lower rate.
  
  
• Jointly owned property
  Married couples often own property jointly. Any income arising from such property is generally taxed on the couple 50/50 unless they elect for the income to be split in the proportion in which the asset is owned. Civil partners will be treated in exactly the same way.

Generally the changes are good news but please talk to us before registering your partnership so that we can run through all of the implications with you.

As a final point, note that the provisions do not extend to unmarried heterosexual couples. They still need to marry if they are to be treated as married couples for tax purposes.