Cohabiting couples expecting changes to the tax regime must be disappointed.
The Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 (“The Act”) was signed into law on 19th July 2010 and came into effect on 1st January 2011. At the time the necessary amendments to the tax legislation required arising from the Act were deferred. The Government has now published the Finance (No. 3) Bill 2011 (“the Bill”) to introduce the necessary amendments.
The provisions of the Bill, will to a large extent, provide civil partners and their children with the same tax reliefs and exemptions which a married couple and their children enjoy.
By contrast it should be noted that the tax status of cohabiting couples has remained largely unchanged under the provisions of the Bill. Many cohabiting couples have been expecting changes to the tax regime which would be of benefit to them and must be disappointed to discover that they will not be treated in the same way for tax purposes as married couples or registered civil partners.
For income tax purposes, cohabitants will continue to be taxed as single persons and unused tax credits and standard rate bands cannot be transferred between qualified cohabitants.
Tax relief will be available to cohabitants in very limited circumstances. The Act provides a mechanism for financially dependent cohabitees to apply to the Court for redress following the breakdown of a cohabiting relationship or on the death of the cohabitee and where an Order is made by the Court, the property will pass tax free between the parties.
On the other hand if a couple voluntarily agree to transfer a property between themselves such a transfer will be liable to gift tax and stamp duty in the usual way. Furthermore if cohabiting couples make provision for one another by way of their Wills they will be treated as “strangers” under the tax legislation.
It is anticipated that the Bill will pass into law by mid-July.