Proposals launched this week could make a huge difference to the finances of cohabiting couples as part of government plans to give unmarried heterosexual couples the right to register a civil partnership.
While the debate around the changes has often focused on the perceptions and realities of emotional and social equality, the financial rights enjoyed by those in formalised relationships are significant and long-term.
Under the tax, benefits and pension system, civil partners are generally treated in the same way as married couples who benefit from additional rights.
“The days when the overwhelming majority of families were a husband and wife and their children are a thing of the past,” says Rachael Griffin, a tax and financial planning specialist at Quilter.
“Figures from the ONS show that marriage rates remain at historical lows – in 1941 there were 471,000 marriages in the year compared to 243,000 in 2016 – a drop of nearly 50 per cent.
“However, while society has shifted dramatically, tax rules and benefits have not gone with it, indicating that unmarried couples and their children don’t deserve the same kind of support as those that are married.”
With the legislation required to make the necessary changes expected by the end of this year, cohabiting couples who decide to register a civil partnership will have new access to the “marriage allowance”.
This tax break is worth £250 per year to couples where one partner pays tax at the basic rate and the other has unused tax allowances which they can transfer to the higher earner – up to a total value of £1,190 a year.
They’ll also have access to bereavement benefits for working-age couples. Currently, the national insurance benefits system recognises only marriage and civil partnership but not cohabitation. That means cohabiting couples can miss out on state help if one of them dies under pension age.
For those whose partners die today, the combination of the bereavement support payment and widowed parent’s allowance is worth up to £11,608.20 for the first 18 months – a substantial sum of money for people who are struggling to cope with a life-changing event and trying to get back on their feet.
The new rules will also pave the way for couples to inherit pension benefits in occupational pension schemes where provision for cohabiting couples has not yet been equalised and they’ll gain access to inheritance tax breaks for married couples, including the ability to pass on money to a partner free of inheritance tax.
“It is very good news that the government has responded to the recent court judgment by pressing ahead with legislation to allow all couples to register a civil partnership,” Steve Webb, director of policy at Royal London, said.
“Couples who live together have been second class citizens for far too long when it comes to their treatment by the tax and benefit system. Registering for a civil partnership will bring access to a range of help from the tax and benefit system, and millions of couples will want to think if this is the right thing for them to do.”
But a civil partnership is still a big step for a couple to consider – one that feels like an archaic piece of bureaucracy against the backdrop of life today.
There’s a persistent sense that such changes are simply bending a fundamentally out-of-date system to cope with each glaring inequality that arises on a piecemeal basis.
“In general policymakers need to ensure their taxes and policies are fit for the modern-day as even relatively new taxes are steeped in history,” adds Griffin.
“For instance, the residence nil rate band is only transferable to a spouse or civil partner and the same is true of the transferable nil rate band.
“The system clearly needs a rethink and a different way of determining when the taxes and benefits apply.”
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