It has been over five years since Rebecca Steinfield and Charles Keidan headed to their local register office to try and form a civil partnership, only to be turned away because they were not the same sex.
Their prolonged legal campaign now means that where the law previously only allowed same-sex couples to enter into civil partnerships, heterosexual couples can now too become civil partners. This follows the Supreme Court decision in June 2018 that the law banning opposite-sex couples from forming civil partnerships was discriminatory.
Following the Supreme Court decision, it is estimated that as many as 84,000 couples will enter into civil partnerships in 2020, and with over 3 million couples in the UK currently cohabiting as a precursor to formalising their relationships, what, in terms of Wills and Estate Planning, does this mean for couples who wish to enter into a civil partnership?
Nil Rate Bands
Transfers between civil partners are exempt from Inheritance Tax. So, if everything is left to the surviving civil partner on first death, the deceased’s civil partner will have a full nil-rate band available to them, which is their Inheritance Tax free allowance.
It is also possible on second death to claim to use any unused nil-rate band from the first death, known as the transferable nil-rate band. As the current value of the nil-rate band is £325,000, this means that the estate of the second civil partner will have the benefit of up to £650,000 of tax allowance.
Similarly, civil partners can take advantage of the Residence Nil Rate Band (RNRB) which will increase to £175,000 in April 2020 (currently £150,000) to offset against their home provided that it is left to a direct descendant, such as a child or step-child.
The RNRB can also be transferred to civil partners on second death, meaning that come 6 April 2020 £350,000 can be offset against your property. However, the RNRB can also be lost entirely as it reduces by £1 for every £2 that the estate is worth over £2 million. At today’s rates, the RNRB allowance tapers away altogether for an estate worth over £2,300,000.
Entering into a Civil Partnership
Many couples do not realise that their Will is automatically revoked by entering into a civil partnership. Whilst it is certainly not necessary to wait until you have entered into a civil partnership to draw up a valid Will, one way of avoiding this is to prepare your Will “in contemplation” of your civil partnership, naming the individual that you intend to enter into a civil partnership with.
This means that if you enter into a civil partnership and your Will has not been made in contemplation of your civil partnership, then your existing Will will not be valid when you die, and without a valid Will, the intestacy rules kick in.
If the intestacy rules come into play then a strict set of rules governing how your estate is distributed will apply. This may mean that you end up playing the intestacy roulette wheel meaning certain people may, or may not, benefit from your estate.
What if my Civil Partnership is dissolved?
If a civil partnership is dissolved, whilst this will not void any Will that you may have in place, it will be dealt with as if your ex-partner died on the date that the civil partnership ended.
Regardless of your personal circumstances, whether you are single, married, cohabiting or in a civil partnership, it is important to plan ahead, especially if you own property, have savings and investments, or own a business.
There are many benefits to having a Will in place, from ensuring you leave an inheritance to friends and family, to potentially reducing the amount of Inheritance Tax payable on your estate.
For more information on any of the above, of how we can help you, please contact Tom Bridge, or call 0191 232 8345.