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News: Relatives set for 110K benefit from civil partnerships

New research by Friends Provident suggests that following the introduction of the Civil Partnership Act, civil partners who register their partnership could use a nil rate band trust to save their relatives up to £110,000 in inheritance tax (IHT). Or 40% of the current nil rate band of £275,000 (2005/2006 tax year). And with around 16,500 individuals expected to register their partnership by 2010, they could potentially make a total saving of £0.9 billion.

By entering into a civil partnership, not only can same sex couples benefit from spousal exemption rules, they can also use discretionary trusts to potentially save even more money when the second partner dies - ensuring that their inheritance ends up where they choose.

The advent of civil partnership ceremonies from December 21st 2005, could pose a further IHT issue by rendering over 5,000 wills invalid. This is calculated by multiplying the number of people expected to register under the CPA by the percentage of UK gay adults estimated to have a will in place.

Civil partnerships have the same financial implications as marriage and if the anticipated 16,500 individuals register their relationships by 2010, many will be unaware that this process automatically invalidates an existing will.

Transfers of property and gifts between married couples and civil partners (from December 21st) are exempt from IHT, yet on the death of the second partner, any inheritance over the threshold of £275,000 will potentially be subject to 40% tax. Careful tax planning can help make this a thing of the past.

If an individual does not have a will, their civil partner will benefit from the same statutory rights as a spouse under current intestacy rules.

On the other hand if an individual does have a will, this will be invalidated once a partnership is registered.

Assets can be gifted between partners free of capital gains tax (CGT). Potentially, there is a CGT drawback if each partner owns a property though.

For income tax purposes, the married couple's allowance is extended to registered civil partnerships (although at least one partner must have been born before April 6th 1935).

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