While UK tax rules apply equally regardless of sexual orientation, LGBTQ+ couples can face different outcomes depending on their legal status, family structure, and international circumstances. Stephen Kenny, Private Client Tax Partner, outlines the key considerations around marriage, cohabitation and inheritance planning, and where careful advice is essential.
For the most part LGBTQ+ couples and families in the UK are taxed in the same way as everyone else. I am sure it is no surprise to anyone that the tax rate, bands and relief are the same for LGBTQ+ people as everyone else. Since the introduction of same-sex marriage in the UK, isn’t it wonderful that we are all now on an equal footing?
Largely yes, but it is not always the case that the outcome will be as you initially expect and there can be some difficult complexities to navigate, particularly in relation to inheritance tax and tax planning for LGBTQ+ couples.
What counts as a family for tax purposes?
What is considered a family has evolved considerably over recent years. Traditionally a family meant a husband, wife and children. Now we would consider it to include:
- Cohabiting couples
- Single parent households
- Blended families
- Same sex couples
Marriage vs cohabitation: Key tax differences for LGBTQ+ Couples
For the most part in the UK the key distinction is if a couple if married (including civil partners) or not. Many couples now choose not to get married, this affects not only the LGBTQ+ population.
Cohabiting couples are not treated in the same way as spouses or civil partners for many tax and succession purposes, and a long relationship does not by itself create an automatic spouse-equivalent tax status.
It is important to understand the long-term tax implication, in particular for Inheritance Tax for cohabiting couples in the UK, if in a long term co-habitation.
Why legal status matters for tax
From a tax perspective, legal status matters. Spouses and civil partners can benefit from important rules, including the inheritance tax spouse exemption and capital gains tax no-gain/no-loss treatment on many lifetime transfers.
Cohabiting partners, however long-standing the relationship, do not receive the same treatment.
That distinction can be particularly important for LGBTQ+ couples with international lives, where a relationship recognised in the UK may not be recognised in the same way overseas.
International tax considerations for LGBTQ+ Couples
Whilst same sex marriage is legal in the UK will the same rights be offered overseas? Only a minority of countries allow same sex couples to marry domestically. It is important to consider the implications of moving to countries that does not recognise same sex marriage, particularly from both a legal and tax perspective.
Over the past few years we have seen increasing migration from UK often to countries that don’t recognise same sex marriage or where same sex relations may face criminal prosecution. For those moving abroad, tax planning should sit alongside legal and practical planning.
Key tax and legal considerations before moving abroad
Before relocating, couples should take local advice on recognition of their relationship, succession, property ownership, immigration/residence rights and tax residence.
This can mean when moving abroad LBGTQ+ people have to consider:
- Ensuring their will is compliant with the local jurisdiction
- Beneficiary nomination for life insurance policies
- Powers of attorney and medical document decision
- The ownership assets of overseas property
- Being careful about the use of “spouse” in local documentation
Tax and legal considerations for LGBTQ+ families with children
Where children are involved, the legal and tax analysis can become more sensitive. Couples may need to consider whether both parents are recognised under local law, who has authority to make decisions, how guardianship would operate, and whether forced heirship or local succession rules could override the family’s expectations.
Ultimately, while UK tax rules apply equally to all, LGBTQ+ couples can face different outcomes depending on their legal status and personal circumstances. Taking proactive advice, particularly around inheritance tax, cohabitation and cross-border issues, can help ensure arrangements reflect both intentions and tax efficiency.
