Tax and Civil Partners – Change Effective 5th December 2005

These changes will take effect from 5th December 2005. The Civil Partnership Acts creates an entirely new legal status of civil partner, giving same-sex couples in the UK the opportunity of acquiring legal status for their relationship. Couples who enter into a civil partnership will assume the rights and responsibilities reflecting those already existing for married couples. The key areas affected are listed below. They also serve as a useful reminder of the issues married couples and those planning to marry should be aware of: -

Inheritance Tax

• Civil partners will be able to make gifts or bequests to their partners with the benefit of the inheritance tax exemption.
  
  
• There will also be changes elsewhere in the legislation to extend to civil partners other provisions currently applying to spouses. For example, anti-avoidance provisions that apply to marriage will be applied to civil partnerships.

Capital Gains Tax (CGT)

• Only one property owned by a couple, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for CGT purposes and thus qualify for private residence relief;
  
• Transfer of assets between persons who are civil partners who are living together will be on a no-gain no-loss basis, and thus not attract an immediate CGT charge; and
  
• Civil partners will be connected persons in the same way as husbands and wives. They will also be connected with certain other persons, such as close relatives of their civil partner. Furthermore, where one partner settles property into a settlement under which the other partner can benefit, the settlor may be liable to CGT by reference to capital gains realised by the trustees.
  

OTHER CHANGES

• Those who can sign a gross registration declaration (made on form R85) on behalf of a person who lacks the mental capacity to operate their own bank or building society account will be extended to include civil partners.

Pension Schemes (other than state pension)

• The current pension tax legislation will be amended to include civil partner, former civil partner, and surviving civil partner under the terms of the Civil Partnership Act for existing as well as the pension tax simplification legislation that takes effect from 6th April 2006.

Settlements

• Anti-avoidance legislation will be extended to include civil partners in the same way as spouses. In other words, once registered as a civil partnership, inter partner transfers are likely to be ineffectual for tax planning!

Beneficial Ownership

• Civil partners can elect to have income from property they hold jointly taxed on a basis other than 50/50.

Company Control Test

• The term ‘associate’ will also include civil partner. This could potentially double effective tax rates in companies covered by civil partners overnight!

Stamp Duty

• The exemption from Stamp Duty and SDLT for transactions carried out in connection with divorce such as a transfer of shares or the transfer of the marital home from joint ownership into the sole ownership of one of the ex-partners will also apply for transactions carried out in connection with the dissolution of a civil partnership.

Transfer of Assets Abroad

• This legislation aims to prevent individuals avoiding income tax by means of the transfer of assets. It provides that an income tax charge may arise on the partner of one partner who makes a transfer of assets, where the partner is involved in the transfer of associated operations.

Married Couple’s Allowance

• Civil partners will have similar rights so that civil partnerships and also new marriages meeting the age criteria (date of birth pre 6th April 1935) will have an allowance based on the income of the highest earner.

Blind Person’s Allowance

• Surplus allowance will be transferable to a civil partner.

If you any queries regarding this article either from the perspective of a civil partner, or marriage, please contact Steve Cook, Tax Partner on either steve@nunn-hayward.com or 01753 888211.

STOP PRESS!!

Professionals and Higher Paid Employees – Next Target for HMRC

Following the perceived success of other recent leverage letters, HM Revenue & Customs has commenced a new project regarding professionals and higher paid employees.

The main areas that HMRC seem concerned about are constantly high levels of expense claims, for professional subscriptions, business mileage and the like.

We understand that three different classes of leverage letter are being issued:-

• One suggests the taxpayer may wish to consider the level of expenses being claimed when submitting their next tax return.
  
• Another notes that the taxpayer is at risk of enquiry due to the levels of expenditure claimed.
  
• The third states that if the taxpayer continues to claim expenses on this basis, they will be investigated in the subsequent tax year.

These letters have been trialled and is now to be rolled out nationally. As with previous letters to self-employed taxpayers, HMRC’s view is that these are not enquiry letters but simply an attempt to encourage voluntary compliance.

If you have any concerns about the contents of this article please contact your usual contact at Nunn Hayward or Steve Cook, Tax Partner on 01753 888211 or steve@nunn-hayward.com.

Please contact us to discuss the above further

Tel: 01753 888211 Fax: 01753 889669 Email: abacus@nunn-hayward.com
Nunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL.

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