Same-sex couples and estate planning

According to the Office of National Statistics (ONS), it is estimated that 3.3% of the UK population aged 16 and over identified as lesbian, gay or bisexual in 2022, an increase from 2.1% in 2017.

Find out more on sexual orientation data here

Whilst sexuality, as such, is not a key consideration when estate planning, it is crucial for same-sex couples to give thought to some fundamental issues to ensure their assets are distributed according to their wishes. So, what should same-sex couples consider when it comes to estate planning?

What considerations should same-sex couples give to Inheritance Tax (IHT) planning?

In England and Wales, IHT exemptions and allowances for same-sex couples are broadly the same as for opposite-sex couples, provided they are married or in a civil partnership.

Generally speaking, transfers of assets between spouses or civil partners are exempt from IHT, both during their lifetime and upon death. This means that under the terms of a Will, one spouse or partner can pass on their entire estate, regardless of value, to the other without any IHT implications.

As well as exempt transfers between spouses or partners, married couples and civil partners have the ability to transfer any unused portion of their nil-rate band (NRB) and residence nil-rate band (RNRB) to their surviving spouse or partner upon death. 

Each individual has a NRB of £325,000. This means that any part of an estate up to that threshold is chargeable to IHT at a rate of 0% and at 40% on any part over that threshold.

An additional RNRB may be available if an individual passes their main residence to their direct descendants (e.g. children, including adopted, foster, or stepchildren, and grandchildren); this can add a further £175,000 of allowance to an individual’s estate.

Married couples or civil partners can benefit from combining their NRBs up to the value of £650,000, provided the first partner to die did not use any of their allowance. Similarly, the RNRB is also transferable between spouses and civil partners, potentially providing an additional £350,000 in allowances to the surviving partner. 

This could mean that the surviving spouse or civil partner has up to a maximum of £1,000,000 worth of allowances available to them.

If same-sex spouses and civil partners do not have Wills in place on their death, under the intestacy rules the survivor would benefit from a right to inherit a certain proportion of their partner’s estate.

What about same-sex couples who co-habit?

Unfortunately, same-sex couples who are not married or in a civil partnership do not enjoy the same benefits as those who are. 

The main difference is the ability of one partner to leave assets owned in their sole name, regardless of value, to the surviving partner without any IHT consequences. Any transfer between same-sex partners, both during their lifetime or on death, could be subject to tax depending on the value. 

This would also be true of assets held as joint tenants where the survivor automatically inherits the asset by way of survivorship, for example a property held as joint tenants or a joint bank account. Any amount over the NRB threshold would be liable to tax.

Whilst same-sex couples who are unmarried and not in a civil partnership will still have an individual NRB and RNRB (if applicable), there is no ability to transfer any unused portion to a surviving partner. 

Finally, unlike same-sex spouses and civil partners, same-sex cohabitees are not automatically entitled to receive a proportion of their partner’s estate if they die without leaving a valid Will. This could have significant implications for the survivor and may leave them considering bringing a claim against their partner’s estate under the Inheritance (Provision for Family and Dependents) Act 1975, something they should obtain specialist advice on.

What factors should be considered in relation to children of a same-sex relationship?

It is important for same-sex families to give thought to how they may wish to benefit their children and who they would wish to look after their minor children in the event they were to die.

One issue that may be relevant for same-sex partners is what is meant by ‘children’. 

Whilst an adopted child is considered the child of both parties, it would be important for a Will to define what constitutes a child in a situation where one party in the relationship would not be legally considered the child’s parent. This would ensure that the child could inherit from both parties if that is the intention. 

Special consideration and advice may also be needed for children conceived by fertility treatment or via surrogacy. 

To appoint a guardian of a child in a Will, a person must have ‘parental responsibility’. If one of the partners in a same-sex relationship does not have parental responsibility, they cannot appoint a guardian. They can, however, assume parental responsibility if they are appointed as the guardian following the death of the parent with parental responsibility.

How the Moore Barlow Private Wealth team can help

Our team of experienced and knowledgeable Private wealth solicitors can provide you with expert advice and guidance based on your own unique circumstances. Whether you are looking for advice on creating a Will, setting up a trust or discussing your affairs more generally, we can help.