Maggie Fleming is a director of Isis Financial Planners. Isis offers independent specialist financial advice to the gay and lesbian community. For more information on the financial aspects of the Civil Partnership Act see: www.civil-partnerships. info .
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There are currently two distinct types of financial discrimination based on sexuality. One affects both gay men and lesbians and the worst effects of this will disappear once the registration of civil partnerships becomes possible. The other affects only gay men and is based on insurance companies’ stereotypical and outdated perceptions of the risk of HIV/AIDS in the gay male community.
While the Civil Partnership Act gives partners the right, in theory, to insure each other’s lives, in practice, in most cases, this is likely to involve various hurdles which heterosexual couples do not have to face, such as compulsory medicals and HIV tests. However, even in the strange world the life insurance companies inhabit, the 21st century is beginning to break through and changes are in the pipeline.
Looking first at the systemic discrimination which has affected the lives of lesbians and gay men in the past and the major changes which the CPA will bring, the biggest effects will be in the areas of tax and pensions. At present, gay relationships are invisible in law and this is the root of the problem. Until civil partnership is introduced, we cannot register the existence of our relationships in any formal way that the law recognises. Heterosexual married couples enjoy tremendous advantages in the tax system, especially as regards capital taxes. In particular, a husband or wife can gift their legal spouse an asset without incurring a charge to either inheritance tax or capital gains tax. These exemptions apply both during their lifetimes and on death.This means that if a man dies and leaves everything to his wife – house, investments, cash etc. – his wife doe not have to pay a penny of inheritance tax, even if the value of the estate is in the millions!
How different the situation is at present for gay couples! There has been considerable publicity in the past about the discrimination suffered by gay couples where one dies, leaves everything to his partner and, tragically, the partner has to sell the house in order to pay the tax bill. It is hard for anyone who hasn’t gone through it to imagine the cruelty of that situation – having shared a life and a home with someone, you find yourself forced to sell that home, full of memories, at the very time that you are least capable of dealing with such matters. How can you grieve your loss properly in that situation?
I have talked to many surviving partners in this position and it is a heart rending experience. But this is one situation that the introduction of civil partnership will remedy. Once a couple register their partnership, they will have exactly the same rights as heterosexual married couples to pass assets to each other, in life or on death, without adverse taxation consequences. At long last, this discrimination will be ended.
The changes to the tax system will put civil partners in the same position as married heterosexuals.This means that civil partners will be able to do the same kind of tax planning that heterosexuals do routinely. For example, if one partner is a higher rate (40%) taxpayer, while the other pays tax at the basic rate (22%) only, it makes sense for the couple’s investments to be held by the basic rate taxpayer, as he will pay less tax on the income. But, at present, if a same- sex partner gifts an income producing asset, such as a buy-to-let property or a substantial shareholding, to his partner, he may incur a capital gains tax charge. In future, provided they register their partnership, they can pass assets among themselves without having to worry about CGT.
The other main area where the act will impact is on pensions. State pensions and statutory schemes (i.e. public sector schemes, such as Teachers’ Pensions, the Local Government Pension Scheme, the NHS Pension Scheme etc) will have to recognise surviving partners, who will be entitled to benefits accrued since 1988. While this will put younger people in the same position as their heterosexual co-workers, some older people with a lifetime’s service in the public sector will still be disadvantaged. But, nonetheless, the changes will be a vast improvement on the current position with these schemes.
Pensions are a very complex subject and there are many different types. It is not entirely clear how the civil partnership legislation will affect some private occupational schemes. Some of the uncertainties in this area may be resolved by a statutory instrument that has recently been laid before parliament and which contains various amendments to the Employment Equality (Sexual Orientation) Regulations of 2003.This would give a surviving civil partner the same status as a surviving spouse.The regulations would, however, only apply to pension benefits accrued by the pension scheme member from December 2005. Having said that, many private occupational schemes do already offer equality to same-sex couples – if you are a member of such a scheme and would like clarification of your scheme’s attitude, you should consult the trustees.
Understandably, everyone is focusing on the introduction of civil partnership and looking forward to the first ceremonies later this year. But of course the legislation also includes provisions for dissolving partnerships. These arrangements are akin to divorce and may include pension sharing.
The introduction of the Civil Partnership Act will have wide-ranging consequences for all same-sex couples. It is ground-breaking legislation for the UK and will have a major impact on all our lives. As I mentioned above, it also gives gay couples the theoretical right to insure each other’s lives. But, in practice, few insurers are willing to insure gay men on the same terms as heterosexual men because they perceive them as a group at high risk of contracting HIV/AIDS. In recent years, campaigners have worked hard to show insurance companies the error of their ways. The assumptions used by the insurers are outdated and offensively stereotypical. Recent research indicates that rates of infection are rising among the heterosexual population and the statistics certainly do not justify singling out gay men – it is blatant discrimination.
Last year, the Association of British Insurers (ABI) finally listened to what we were saying and agreed to amend their HIV/AIDS ‘best practice’ rules.The new rules mean that, in the future, insurers will not be able to ask what a person’s sexuality is – the relevant question will, instead, ask if someone has been exposed to the risk of HIV infection.The new questions will focus on sexual behaviour, rather than sexual orientation. Another example of stereotyping that should be outlawed under the new rules is making assumptions about people on the basis of their occupations. I have come across cases where an applicant for life insurance has been asked point blank about his sexuality because he indicated on the application form that he was a florist or a member of cabin crew.This was simply unacceptable.
While the new rules were issued last year, the life insurance companies were given 12 months in which to implement them and most have not yet done so. It remains to be seen how the new system will work in practice. In the meantime, it is essential that gay men seeking life insurance, critical illness cover or income protection seek advice from a specialist independent financial adviser (such as Isis Financial Planners Limited) who is aware of the discrimination that still exists and can navigate a way through the minefield so that people are not asked intrusive ‘lifestyle’ questions or made to take unnecessary HIV tests against their wishes.
The financial advisers at Isis Financial Planners have been advising gay men and lesbians for over 10 years, and in that time have gained an in-depth knowledge in the financial discrimination that we face as a community.We have consistently campaigned for change and saw the development of the Civil Partnership Act as offering the best opportunity to wipe out the discrimination outlined in this article. Isis director Louis Letourneau was involved in helping several peers with their contributions to the debate in the House of Lords on the pensions provisions of the Act and was invited to the floor of the House to witness the passage of the bill. Of course, all rights come with obligations and same-sex couples should examine carefully the Act and its pros and cons to see if it is right for them.
In next month’s Fyne Times we examine what you should consider before taking the plunge.
Maggie Fleming is a director of Isis Financial Planners. Isis offers independent specialist financial advice to the gay and lesbian community - see our contacts page. For more information on the financial aspects of the Civil Partnership Act see: www.civil-partnerships. info .
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