In R (on the application of Steinfeld and Keiden) v Secretary of State for International Development [2018] UKSC 32, the Supreme Court held the bar on different-sex couples entering civil partnerships breached Human Rights. This potentially has a significant impact on tax law.
The Supreme Court found that the Civil Partnership Act 2004 (CPA) is incompatible with the prohibition on discrimination in the European Convention of Human Rights. This decision overturned the High Court and Court of Appeal decisions.
The discrimination effectively arose when same-sex marriage became lawful in the UK. At that time the CPA was not repealed, giving same-sex couples a choice of how to formalise long-term relationships: a choice not extended to different-sex couples.
There are a number of tax reliefs that apply for inter-spouse transactions. The law is written as applying to ‘spouses or civil partners’. This will therefore extend to different-sex couples who register a civil partnership.
The reliefs for inter-spouse and inter-civil partner transactions, include:
- No-gain no-loss CGT treatment for gifts of chargeable assets. This is restricted on Divorce, Dissolution, and Separation.
- Inheritance of the donating partner’s Private Residence Relief ownership period on a transfer of property.
- Lifetime and death transfers will be Exempt from IHT, though awareness of the limit on the exemption for Non-domiciled recipients will be needed.
- Various allowances will be capable of transfer between the partners:
- Possible SDLT exemption when property is passed on separation.
There will also be a few downsides:
- Automatically a Connected person for tax. This can affect various tax rules.
- Only one private residence allowed between the partners.
- Settlements provisions will affect different-sex civil partnerships where they may not have before.
- Statutory residence test takes account of whether spouse or civil partner is UK resident when establishing the number of UK ties.
- No ATED relief where enveloped property rented out to civil partner of controlling shareholder.
- Jointly owned property rental income will be tax 50/50 unless a Form 17 Declaration is made.
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