My partner and I want to ensure our financial arrangements are in order so we can travel the world in later years. As we are both female, I am aware that we need to be more organised than other couples, especially should anything happen to either of us. What advice can you give us?
In the Civil Partnerships Bill published on March 31, 2004, the Government accepts that for a same-sex couple, the denial of the opportunity to have their relationship recognised provides a number of day-to-day challenges when they attempt to organise their joint lives. Although there is no intention to introduce same-sex marriages, the introduction of a civil partnership registration scheme will help many unmarried couples.
Partnership registration schemes have been established in a number of places in England and Wales. However, they have no legal status, which means that gay and lesbian couples are treated in law as any unmarried couple. This means that to commit to each other financially, a number of arrangements need to be put in place. Married couples may also need to address the same issues but to a lesser extent.
Arrangements that should be considered include ensuring a valid nomination of beneficiaries is in place for pension benefits, executing wills, ensuring where possible that joint accounts hold common monies and securing resident status for partners from overseas.
When considering property purchases, lenders are interested in credit scoring, ability to pay and property valuation, not the living arrangements of a couple. The title and mortgage deeds should be set up as joint tenants.
Where a partner wishes to add a name to the deeds, this will be deemed as a gift treated as a potentially-exempt transfer. The partner needs to survive for seven years after the transfer for it to be free of inheritance tax.
The execution of wills is important for many reasons. For inheritance tax purposes, the inter-spousal exemption does not apply and any assets bequeathed over the current threshold of £263,000 will be subject to inheritance tax at one of highest taxation levels in the UK – 40 per cent.
Wills are also important to guide the executor(s) in the distribution of the estate. If the couple have children – remembering that over 40 per cent of children in the UK are born to unmarried people – arrangements for caring for them could be contested where there is no will. Although a will is not legally binding in this context, it certainly helps minimise disputes. The use of a discretionary will trust for assets left on death may also be appropriate.
It is fairly straightforward to complete a nomination of beneficiary or an expression of wish form to guide the payment of pension benefits. It is important that the nomination is clear so the trustees know who is the intended beneficiary. Stating “my partner Kate” or “my wife” is not sufficient.
Given that heterosexual and gay and lesbian relationships are subject to breakdown at about the same rate, one cannot assume that relationships will last for ever. Nominations need to use full titles, addresses and even dates of birth. You should be aware that many pension scheme trustees and providers still demand proof of dependent relationship in the event of a claim and they may still ignore your wishes.
In taxation terms, if you give your partner assets as a gift, such as company shares or investments, you may be liable to capital gains tax where a married couple would be exempt.
Lesbians are not generally discriminated against for life cover as has been the case with gay men. Until civil partnerships are recognised legally, a regular review of the value of pension rights, protection policies and investments and how they are arranged should be made. Changing lifestyles such as moving abroad or setting up a business also prompt regular reviews.
The basic aims of financial planning apply – to create financial independence for the individual and any of their dependants. This applies to all couples, regardless of status.
Financial independence comes when the property in which you live is paid for and there is guaranteed after-tax income greater than budgeted expenditure. The successful construction of an investment portfolio depends on a variety of things but hinges on purchasing the right assets and maximising the tax-efficiency and security of investments to match both of your risk profiles and investment outlooks.