The USA’s Supreme Court’s historic decision on same sex marriage last Friday received less attention from the media than might otherwise have been the case, had the day not brought other terrible news from abroad.
The full case report in Obergefell v Hodges can be read here. The Supreme Court stated that the Fourteenth Amendment to the US Constitution requires each State to licence same-sex marriage and to recognise a same sex marriage lawfully licenced and performed in another State. The leading judgment concludes, “No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were…. [Same sex couples] ask for equal dignity in the eyes of the law. The Constitution grants them that right.”
Presumably the exemption that now applies for estate and gift tax purposes in the USA for transfers between spouses will now apply across all States to both opposite sex and same sex marriages. Same sex marriages have of course been possible under UK law since March 2014 and, as with opposite sex marriages, marriage brings with it a number of advantages for capital tax and succession purposes.
The capital tax implication likely to have the greatest impact for couples entering into a same sex marriage in the UK are those relating to Inheritance Tax (IHT) which is currently payable on the value of assets left on death in excess of £325,000.
Gifts in lifetime or on death between spouses and civil partners are exempt from tax and this applies to same sex married couples in the same way. If one spouse dies leaving all of their property to their husband or wife, there will be no inheritance tax to pay. In addition, the surviving spouse will be entitled to use the deceased spouse’s unused inheritance tax nil rate band against the value of the assets left by them, as well as their own nil rate band. In this way, a married couple, both same sex and opposite sex, can leave up to £650,000 on death without any IHT to pay.
It is also possible for assets to be transferred between a married couple without any capital gains tax becoming due. Each partner will continue to be entitled to the annual capital gains tax allowance but the couple can only have one main residence as far as the principal private residence capital gains tax exemption is concerned.
A Will that is in place at the time of any marriage will be revoked, unless the Will states that it was made in contemplation of that marriage. References to a “spouse” in a Will made after 13 March 2014 will be taken to include a spouse who is of the same sex as their partner. This does not apply to Wills made before 13 March 2014, so a testator who would like a spouse in a same sex marriage to benefit under their Will should consider a change to the Will if the spouse is not mentioned by name.
If a same sex spouse dies without making a Will then his or her spouse will be entitled to benefit under the intestacy rules. For childless couples the surviving spouse will inherit the entire estate. For couples with children the assets of the deceased partner will be divided between the surviving spouse and the children, with the surviving spouse receiving the first £250,000 and half the remainder.
As with opposite sex married couples it is always preferable to make a Will rather than relying on the “one size fits all” intestacy rules.