Equality should be universal

Equal rights for same-sex couples have come a long way in the past ten years. Now those couples can marry in a civil ceremony (or religious one, if the relevant institution opts in) and existing civil partners can also convert their union to a marriage. However, there is still one area of inequality that I hope will be addressed.

Although many other countries grant the same tax reliefs and exemptions to same-sex married couples as to opposite-sex married couples, they may not recognise a civil partnership as being akin to a same-sex marriage. The US and Spain are two examples.

In the US, following a Supreme Court ruling last year, same-sex married couples are entitled to the same tax reliefs and exemptions as opposite-sex married couples. The ruling extends to same-sex marriages that have taken place in foreign jurisdictions. However, it has become clear that the ruling does not extend to UK civil partnerships.

For instance, if a UK-domiciled civil partner who is also a US citizen dies, their worldwide estate is subject to US federal estate duty. The worldwide estate is also subject to UK inheritance tax (IHT). If the estate passes to the surviving civil partner, no IHT is payable as the UK IHT ‘spouse’ exemption applies.

US estate duty will be payable on the worldwide estate, though, regardless of the surviving civil partner’s entitlement as exemption from estate duty only applies to married couples and a civil partnership is not recognised as akin to a marriage.

In sizeable estates, particularly where there are
not many liquid assets, this will come at a huge cost for the survivor who may need to sell their home
and other assets to pay the tax bill. And it’s upsetting at a time of grief to be treated unfairly and seemingly without respect for what might have been a
long-standing union.

The Department for Culture, Media and Sport published Civil Partnership Review (England and Wales): a consultation in January, prompted by the Marriage (Same Sex Couples) Act 2013. Queries had been raised over the ongoing need for civil partnerships when same-sex marriage came in and, for all practical purposes, provided the same rights.

The consultation may offer an opportunity to address the problems I have seen. Among the issues being considered is whether to abolish all civil partnerships going forward (on the basis that marriage is now available) and automatically convert existing civil partnerships to same-sex marriages. It’s a radical proposal, and there are administrative, social and costs hurdles to be overcome. It may solve the problems facing civil partners with foreign connections.

While the new mechanism for converting to same-sex marriage is helpful, it relies on civil partners being aware of the potential tax inequality they face in other jurisdictions, and many won’t until after death, when it is too late.

However, some civil partners have told me that they are against a change to their status. The ability to have entered into a civil partnership in the first place meant a great deal to them. Some are worried about it being seen as second best to marriage. Perhaps a midway point is needed: a dual status civil partnership/marriage that would address the problem without discriminating against those who haven’t taken tax planning advice or undermining the value of a civil partnership.

We cannot control what foreign jurisdictions do but we should give couples every chance of their union being recognised abroad by taking this matter into account in the consultation on civil partnerships.

Fay Copeland is partner and head of private client at Wedlake Bell

She writes the regular comment on inheritance in Private Client Adviser

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