Estate-planning challenges for the LGBTQ+ community
At a glance
- LGBTQ+ couples may not be eligible for all the Inheritance Tax allowances available – for example, if they’re not in a legally recognised union (a marriage or civil partnership) or don’t have children.
- Having an up-to-date Will is crucial for ensuring your assets and care of any children you may have pass to the right party.
- Transgender beneficiaries included in a Will under their gender assigned at birth may be excluded if the Will post-dates the Gender Recognition Act 2004, so ensure any Will is up to date.
In many ways, Inheritance Tax (IHT) is stuck in the past. The nil-rate band – the threshold above which you pay IHT – has remained at £325,000 since 2009, despite house prices increasing more than 50% in that time1. What’s more, any moves to make the policy more inclusive have lagged, too.
One example is the residence nil-rate band (RNRB), which increases the amount that can be passed on without incurring IHT by £175,000 per person. However, your home must go to a direct descendant – your child or grandchild – so people without children can’t access this allowance.
There are other rules that rely on you being married or in a civil partnership to mitigate your IHT liability – for example, passing assets between spouses and civil partners free of IHT. However, many LGBTQ+ couples aren’t in a legally registered partnership and don’t have children.
Malcolm Cuthbert, Director of Rollo Wealth Management Ltd, a St. James’s Place Partner practice, says that many LGBTQ+ people are reluctant to get married or enter a civil partnership, even though they could benefit financially.
He adds: “For LGBTQ+ people of a certain age, there may also be a stigma to getting married. If it isn’t broken, why fix it?”
How important is it to write a Will?
Having a well-written and up-to-date Will in place is key, particularly if you have young children. Legally, the guardian or guardians of a minor child can be chosen only by the person with legal parental responsibility. In same-sex relationships, the birth mother and biological father will always have parental responsibility, but whether the other partner does will depend on a number of factors. These include whether the couple are married and whether the child was conceived as a result of treatment at a licensed UK fertility clinic. If one parent doesn’t have parental responsibility, then he or she cannot appoint a guardian for the minor child in his or her Will.
If it’s intended that the partner who doesn’t have parental responsibility should take care of the child following the death of the parent who does have parental responsibility, then he or she needs to be specifically named as a guardian in the Will. This then confers parental responsibility on him or her in that situation.
The same would apply to any family with stepchildren who haven’t been formally adopted by the new partner, or where that partner hadn’t been granted a parental order.
What’s more, for couples who are cohabiting but not married or in a civil partnership, not having a Will would mean one partner receives nothing if the other dies.
If there are children involved, it becomes even more complicated; even if a couple are in a legal union, without a Will the rules of intestacy will apply.
Under these rules, in England and Wales “the first £270,000 of the estate, as well as your personal items, will go to a surviving spouse or civil partner. Any assets that are owned jointly, such as the family home or a joint bank account, will automatically pass to the surviving spouse. But anything over this would be split 50/50 between a trust for the children and the spouse or civil partner,” explains Katherine Forster, Associate at law firm Mishcon de Reya. “If you’re just cohabiting, then the whole lot could go to your kids. This could leave your partner not just bereaved, but potentially homeless too.”
Those who don’t inherit under a Will or the rules of intestacy may in certain circumstances be able to apply to court for financial provision from the estate.
Katherine says: “In many ways, the law is still evolving to encompass the different forms of family. As such, the LGBTQ+ community do need to be aware of their legal position under their partner’s Will or on an intestacy, and where they stand in relation to IHT on their partner’s death.”
It’s always important to update your Will if your circumstances change. Since 2004, it has been possible to apply for a Gender Recognition Certificate, which legally recognises a change of gender. This applies to gifts in Wills made since 4 April 2005.
If someone leaves their estate to “my son and my daughter equally” in a pre-April 2005 Will, but the son subsequently transitions, then the son would be recognised by what’ is on his birth certificate, so he would be treated as a son and therefore would inherit equally with his sister.
In contrast, with a post-April 2005 Will, the estate will pass according to the newly acquired gender, in which case the son doesn’t inherit. He could apply to the court to rectify the failed gift. This issue can be resolved by naming the children in the Will and not referring to them by gender.
A spokesperson for the Society of Trust and Estate Practitioners (STEP) says: “We recommend reviewing Wills and trusts for out-of-date or gender-specific language, to avoid unintentionally excluding those you intend to benefit, and making sure your wishes are clear to avoid potential disputes.”
How we can help you
We’re working hard to improve access to tailored advice for LGBTQ+ people, who face specific issues when it comes to financial planning, including around IHT. Don’t underestimate how important it is to have people who understand the challenges you face making financial decisions. Having someone whom you feel comfortable talking to will help ensure you’re given the best advice.
For more information, download our Understanding Inheritance Tax guide.
Will writing involves referral to a service that is separate and distinct to those offered by St James’s Place. Wills and Trusts are not regulated by the Financial Conduct Authority.
1Rightmove, ‘Margate named house price hotspot as Northern towns lag behind’, 10 February 2022
SJP Approved 15/03/2023
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