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Taxation and Civil Partnerships

From 5 December 2005 civil partners will be treated in the UK for tax purposes in the same way as
married couples. These carry some advantages, but also some disadvantages.

Different rules will apply in other countries, and only a few will recognise a UK civil partnership as
having the same tax status as a marriage.

Inheritance Tax

• Property passing between civil partners will be exempt in the same way as between spouses.
• Equally, property passing from a UK domiciled spouse or civil partner to a non-UK domiciled spouse or civil
  partner will only be exempt to the extent of £55,000. This figure has not been increased since 1985.
  All other inheritance tax rules applying between spouses will also apply to civil partners.

Capital Gains Tax

• Transfers of assets between civil partners who are living together will be deemed to be on a no
  gain/no loss basis.
• Civil partners will only be permitted to have one principal private residence exemption between
  them. On formation of a civil partnership, both partners need to elect which property is to be the
  exempt residence. Loss of this relief can be expensive, so that careful planning is required.
• The rules in relation to taper relief will apply to civil partners in the same manner as to spouses. This
  is usually advantageous, but the acquisition of shares from a spouse or civil partner does not carry
  with it the prior business use status of that spouse or partner, so that business taper relief can be
  lost, in these circumstances.
• Capital gains of a settlement are assessable on the person creating the trust when he or his spouse
  or civil partner has an interest in the settlement.

Company Taxation and Dividends

• Arctic Systems - the same principles will be applied to both spouses and civil partners in relation to
  dividends extracted from small companies. The dividend income may therefore be taxed on the civil
  partner operating the company.
• Companies controlled by civil partners will be associated companies, in the same way as those
  controlled by spouses, so that the companies’ turnovers are aggregated to establish the relevant
  corporation tax rates. This can have the effect of increasing corporation tax from 19% to 30%. The
  marginal rate can be 32.75%.

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