Civil partnerships were reserved for same sex couples only. However, in recent years opposite sex couples have been campaigning for civil partnerships for heterosexual couples. The Supreme Court of England and Wales ruled in favour of civil partnerships for all, as the Civil Partnership Act 2004 was seen as an infringement of the European Convention of Human Rights. The legislation will be changed, though this is thought to take some time.
So how does a civil partnership affect estate planning? Firstly, it’s important to determine what ‘estate planning’ actually is. Your estate covers everything you own including property, finances, material possessions and even your social media accounts. An estate plan is how you wish to distribute your assets and possessions among your loved ones.
Here are six ways a civil partnership changes estate planning for all couples:
If you die without making a will your partner will still inherit your assets
If you’re in a civil partnership and you die intestate (without making a will) then your partner will automatically inherit a portion, or all, of your property. For example. if you and your partner own and live in a house together, they will stand to automatically inherit it after you die – unless there are special circumstances.
If you die having made a valid will your wishes will be carried out
If you or your partner dies after making a valid will, then all wishes will be carried out as they would be for a will from a marriage. For example, if you want to pass down your home to your partner and your holiday home to your children then the wishes will be carried out as specified.
Civil partners are exempt from Inheritance Tax
Neither you or your partner will pay Inheritance Tax if the value of your entire estate is below £325,000. You will also be exempt from Inheritance Tax if you leave all your estate to your civil partner, community sports club or a charity.
The Inheritance Tax increases to £450,000 if children are the heirs
If you want to leave your property to your birth children the Inheritance Tax exemption threshold increases to £450,000. This also extends to foster, adopted and stepchildren.
You can add surplus Inheritance Tax threshold to your partner’s threshold.
If your estate is under the threshold, the ‘unused’ threshold can be added to your partner’s threshold when they pass away. This pushes the maximum Inheritance Tax threshold to £900,000.
You can pay a reduced Inheritance Tax rate in some circumstances
The standard rate for Inheritance Tax is 40% but you can reduce it to 36% if at least 10% of your net assets are left to charity in the will. If you and your partner owned farmland or woodland you may be eligible for Agricultural Relief on your Inheritance Tax bill.