More than three million cohabiting couples across the UK will now be entitled to receive the same financial safety net as those who have tied the knot; saving them billions of pounds in tax each year.

In a landmark court case last month, the Supreme Court ruled that civil partnerships should be available to both same and opposite sex couples alike. The ruling is thought to also have a major impact on couples living together outside marriage and civil partnerships regarding tax reliefs (like the Marriage Allowance) and benefits.

What does it mean for your staff and your business?

Equalising civil partnerships

Same-sex marriage legislation was passed in England and Wales way back in 2013. This left same-sex couples looking to make their relationships legal with two options, and opposite-sex couples with only one.

Marriage also carries a number of religious connotations, leaving many non-religious opposite-sex couples in an awkward position.

In Steinfield and Keidan V Secretary of State for International Development, the court issued a unanimous judgement that preventing opposite-sex couples from entering into civil partnerships went against the European Convention on Human Rights and that it should therefore be made available to all..

Insurance firm Royal London have said that, whilst the ruling is a victory in its own right, they estimate that the change could also have a major impact on cohabiting couples too.

Couples who only live together are not currently entitled to the same legal rights as those who are married or in civil partnerships because, in the eyes of the law, they are not legally bound to one another.

However, in the majority of cases, these couples still share their finances with each other; putting them at a lost when it comes to tax breaks and benefits.

Helen Morrissey of Royal London says that “with each passing year, more and more people are choosing to live together as a couple without marrying, yet we still have a tax and benefit system which barely recognises their existence.

“It cannot be right that they pay the same tax and National Insurance contributions into the system as their married counterparts but are entitled to get less out of it.”

The marriage allowance

The most well-known tax incentive given to married couples and civil partners is the marriage allowance.

This tax break allows you to transfer as much as £1,190 of your annual personal allowance to your husband, wife, or civil partner if they earn more than you each year. That means your partner could save an extra £238 on their tax bill; benefitting your joint financial situation.

Now that civil partnerships have been extended to opposite-sex couples, this incentive could potentially apply to unmarried couples in the UK soon too.  If so, cohabiting couples would be able to share their allowances with one another to claim an extra £750million in tax relief each year; equating to £230 per household.

As long as one of you pays tax at the lower rate, or does not pay tax at all, you can give your unused allowance to your partner to reduce their tax bill.

Recent figures have also found that as many as one in four already entitled couples are missing out on their tax breaks by not claiming marriage allowance.

Sara Coles, personal finance analyst at financial provider Hargreaves Lansdown says: “The marriage allowance was always a weird quirk in the tax system, designed to show how the government ‘valued commitment’ within families, by introducing yet another level of complexity to tax rules.”

“However, quirk or not, if you’re eligible for a tax break, it’s worth taking advantage of it. As time has gone on, the backdated sums have started to add up, so a million couples could spend a few minutes with an online form and get up to £900 in their account in time for the summer holidays.”

Other benefits for cohabiting couples

Following the Supreme Court’s ruling, it is thought that couples that live together outside of marriage or civil partnership will also be entitled to a number of other spousal tax breaks. These include:

• State pension

Many pensioners in the UK today will have reached retirement age before the 6^th April 2016, meaning they fall under the old state pension system.

What this means is, in the event of their death, their surviving spouse would be able to claim the equivalent of a full basic state pension based on their partner’s history of National Insurance Contributions. However, these rights would not apply to cohabiting couples.

With more than a quarter of a million people over the age of 65 living unmarried with a partner, this has left many out of pocket to the tune of approximately £2,500 a year.

The new laws brought in last month could provide more of an incentive for cohabiting older coupled to register for civil partnership to qualify for this relief.

• Bereavement benefits

Married couples and civil partners of working age, i.e. those that have not yet retired, can qualify for National Insurance benefits for bereavement should their partner pass away.

This relief, however, is not currently extended to the bereaved who have lost their cohabiting partner. In 2016, Royal London estimated these couples were missing out on as much as £82 million each year as a result.

Now that opposite-sex couples can also register for civil partnership, thousands more are expected to become entitled to this relief.

• Inheritance tax

Everyone in the UK has their own nil rate band for inheritance tax. This is the total amount they can gift to someone upon their death without paying inheritance tax on it. Currently, this sits at £325,000 to include all gifts, money, and property they bestow.

For married couples leaving everything they own to their surviving spouse however, there is no inheritance tax to pay at all on the first death. For unmarried couples, everything aside certain allowances is taxed at 40%.

This could also provide more of an incentive for cohabiting couples to now become civil partners; entitling them to better tax benefits should one of them pass away.

Speak to Burton Beavan today

If you are part of a cohabiting couple and would like to know more about how the Supreme Court’s ruling could affect your tax bill, speak to your Burton Beavan accountant today. In terms of the cost for businesses in implementing an extended marriage allowance-like tax break across qualifying couples, there should be no additional financial burden on your company.

Please call us on 01606 333900 or email hello@burtonbeavan.co.uk.