This Sunday once again sees Chester Pride coming to our great and diverse city with its carnival of colour and acceptance, but unmarried members of our LGBTQ+ community (and indeed all unmarried co-habiting couples) face some very specific challenges to their finances which, given correct planning in advance can easily be overcome. Here we discuss a few of the challenges:
What happens if either of you die? What happens to your estate – that is everything you own at death? If you both own a home or business together, you may imagine it would pass to your partner and here lies the first possible mistake.
If you have a valid will then this is correct, it will pass in accordance with your wishes. Problem is, this is probably the most overlooked piece of financial planning and most people don’t get around to making one!
Where you die with no will in place (known as having died “intestate”), the ownership of your belongings (your estate) will be given out in line with “intestacy” rules. For example, if you are married or in a civil partnership it’s usually them followed by any children, parents, then siblings and grand-parents and so on. Where you are not married then straight to children, parents etc with the problems then associated?
What can be done? Simple – make a will straight away! Another strategy could be to get married or enter a civil partnership. Your spouse/civil partner is then entitled via intestacy to your estate! Health warning though… saying “Will you marry me to save tax” is not the most romantic reason to get married lol 🙂 Other ways after careful planning could be:
- If you have a property ensure it is owned on a “joint tenancy basis” (rather than tenants-in-common).
- If pensions are involved make sure your “expression of wish” is up to date.
- If life insurance, you could place the proceeds into a “trust”.
Inheritance Tax For our higher net worth clients who are un-married you also have a “nil rate band” of £325,000. Simply put you can leave up to £325,000 of assets (including property, cash and pensions) to your partner free of inheritance tax. However, if you had been married or in a civil partnership – your partner/spouse would receive your entire estate free of inheritance tax – even if it were worth many millions of pounds!! Inheritance tax is currently charged at 40% in this example so you can quickly see the cost of in-action.
Disposing of investments/2nd properties or a business Another type of tax to think about is “Capital Gains Tax” (or CGT). This tax is usually charged when something is “disposed of” or sold. Imagine, you buy a 2nd property for £50,000 and 20 years later sell it for £100,000 then the gain is £50,000. You can then use your CGT tax allowance of £12,000 so the taxable “gain” is £38,000 which you then pay tax on. However, when you are married or in a civil partnership then “inter-spouse disposals” or giving away assets to your partner is not a disposal for tax purposes.
Basically, in the example above, this means you can “gift” half the house to your partner and effectively use their CGT allowance so that you have 2 x £12,000 allowances (£24,000) free of tax!
With anything financial, it’s all about the detail. Where you have any concerns, contact your local experts in complete confidence and we will work through your situation and recommend a unique financial plan to ensure your very own Financial Fortress!