How can civil partners secure their finances?
Jon Hilton and Kevin Jarvis, both 36, want to tie the knot but are unsure about the legal and financial implications.
The couple, who have been together for eight and a half years, will soon be able to sign a new civil partnership agreement. Under an Act of Parliament that comes into force tomorrow, same-sex partners will get the same rights and responsibilities as married couples.
"We're giving [a partnership] serious thought but don't know much about how it will affect our finances, or how the law will regard us in terms of wills and tax," says Jon, who works in a call centre for a firm of solicitors.
He earns £16,000 a year, while Kevin, who manages his own hair salon, earns £30,000. Together, the couple have £13,000 in a joint savings account with Royal Bank of Scotland (RBS).
They live in a three-bedroom semi-detached house in Sheffield, bought five years ago for £50,000; today, its value is £100,000. There is £40,000 left to pay on their repayment mortgage, also with RBS.
Jon and Kevin share the cost of a £15,000 personal loan taken out to build a conservatory. They pay interest at 6.9 per cent to their lender, Marbles, part of HFC Bank. Between them, they owe a further £8,000 on four credit cards. The card companies include Capital One, with an annual percentage rate (APR) of at least 6.9, and Marbles with an APR of 12.9.
"We're also in the process of buying a house in Gran Canaria for €168,000 [£115,000]," says Jon. "We have a 30 per cent deposit, and we'll raise a mortgage to pay for the rest."
The couple have yet to make any pension provision and don't have any protection policies.
The Civil Partnership Act will see Jon and Kevin gain rights previously denied them in different parts of their personal finances should they choose to register as partners.
They need urgently to consider their pension plans, says Rebecca Taylor from the independent financial adviser (IFA) Dunham Financial Services. Their £23,000 in unsecured debts could be cut by the £13,000 they have in cash savings, she adds.
The couple should also consider drawing up a pre-nuptial agreement before entering into a civil partnership, says Martin Loxley, partner and head of family law at Irwin Mitchell law firm.
"It's an opportunity to reduce the scope for conflict in the event of a relationship breaking down."
From tomorrow, civil partners will be treated as married couples for the purpose of inheritance tax (IHT) and capital gains tax (CGT), says Mr Loxley. "Legacies between partners will be exempt from IHT [payable at 40 per cent on any estate above £275,000]. Gifts they make to each other in their lifetime will be free of capital gains tax."
Ms Taylor illustrates this latter point as follows. Say Kevin were to give Jon some shares in his salon business. If, in the future, Kevin's company were sold, their two individual CGT allowances (currently £8,500 per person) could be used to minimise the tax bill - a perk already extended to married couples.
If Jon and Kevin haven't drawn up a will, a civil partnership will at least confer the laws of intestacy on both partners. If one of them dies, a share of his estate will go to the partner, as well as to any children he has, and to other relatives, says Ms Taylor.
However, writing a will would allow both partners to determine exactly where they wanted their assets to go.
A civil partner will have the right to receive benefits, where applicable, from a deceased partner's pension. This means that, where a company pension offers death-in-service benefit or a spouse/partner's pension payout - and not all do - a partner can benefit. Previously, a company didn't have to recognise an unmarried or same-sex partner.
However, both Jon and Kevin need to start saving urgently, warns Ms Taylor. "The longer they leave it, the harder it will be to make any real difference to a pension pot," she says. "Pensions are still a tax-efficient way of doing this."
As a matter of priority, Jon should find out whether his employer offers a pension scheme and whether it makes any contribution to it. But in any case, both Jon and Kevin could consider low-cost stakeholder personal pensions, which attract tax relief. This would let each save for retirement as and when he can afford it.
New pension rules to be introduced from 6 April next year will make saving towards a pension easier. Pension contributions will become more flexible - people will be able to invest a large chunk of their savings or salary - and the current limits on contributions will be raised.
Debts and Savings
Jon and Kevin will be paying more interest on their £23,000 debt than they're earning on their £13,000 savings. For this reason, they should consider cutting the debt with some of the savings, Ms Taylor says - and then build up their savings again.
In the meantime, Chris Morgan from IFA Compass recommends Jon and Kevin move their savings into an instant access account from ING Direct, which pays 4.75 per cent interest.
Ms Taylor reminds the couple to make the most of their separate £3,000 allowances and invest tax-free in mini cash individual savings accounts (ISAs).
The holiday home Jon and Kevin are buying may be a "useful" long-term investment, bringing in rental income, Mr Morgan thinks.
Jon and Kevin should first consider life cover for each other (and for their home loan if they haven't already done so), says Ms Taylor. Married couples have "unlimited insurable interest", which means they can take out life insurance for one another without needing to explain why.
"This right will be extended to civil partners," Ms Taylor says. "It is now far easier for gay men to obtain cover without discrimination. Jon and Kevin should have no problem, as they have a long-standing, stable relationship."
Income protection is also advisable, particularly in Kevin's case, she adds. "As he runs his own salon, he will not have an employer to continue to pay his salary if he is unable to work."
Interview by Esther ShawReuse content