There is too much inconsistency and confusion over the way in which couples are treated in the tax system, particularly regarding those whose relationship is not formally recognised, the Low Incomes Tax Reform Group (LITRG) has said in a report, calling for the introduction of a registration process
The charity says although the tax system does now recognise civil partners, and the benefit system takes account of cohabiting couples, the current tax rules do not reflect all the changes in society.
It cites examples such as couples who live ‘apart together’, that is committed couples who live physically separately due to work or other reasons, or those forced to remain physically living together whilst emotionally separated, usually out of financial necessity. The LITRG says that tax and benefit arrangements often fail to acknowledge these circumstances.
Anthony Thomas, LITRG chairman, said: ‘Take, for example, the case of a married couple recently separated. There are separate rules that apply to them for eligibility for the new marriage allowance; how long they can continue to transfer assets between them free of capital gains tax and how long transfers between them are exempt from inheritance tax.
‘It may also be difficult for them to “prove” a date of separation to determine when they could make separate claims for tax credits.’
Thomas says that this complexity can result in errors on claim forms, which may mean that individuals fail to receive allowances or benefits to which they are entitled, or that HMRC or the Department for Work and Pensions (DWP) may not agree about their status.
‘Although two individuals may be clear as to whether or not they are a couple, the authorities may not agree with them and may decide to investigate their status, a compliance nightmare which is exacerbated by the inadequacy of official information accessible to ordinary taxpayers,’ Thomas said.
Thomas says LITRG regards bereavement support as an area of real concern, as this is not available to unmarried or non-civil partner couples on the death of their partner, and says the benefit should be extended to those parents who lose a de facto spouse.
The charity also wants to see improved guidance from both HMRC and the DWP, plus a wide-ranging review of legislation and practice to achieve consistency and clarity in the definition and treatment of couples for different tax and benefit purposes.
LITRG’s proposals include the introduction of a formal ‘registration’ process with HMRC and the DWP, allowing people to make an official declaration that a couple has been formed (or separated).
It argues this would provide some certainty for couples who have made a clear decision to enter into (or separate from) a committed relationship with each other, without forming a marriage or civil partnership.
Thomas said: ‘The tax position for couples is already confusing and disjointed; on future changes in legislation, we recommend that the Government remains conscious of avoiding further complexity.’
LITRG’s report, Couples in the tax and related welfare systems – a call for greater clarity, is available here