The Equality Act doesn't just protect you on the basis of having a protected characteristic; it also protects you on the basis of being *perceived* (rightly or wrongly) as having that characteristic. (Also on association, though I specifically want to talk about perception here.)
So when TERFs say the Equality Act says "sex not gender" there is a question about whether it uses the word 'sex' the same way they do (it doesn't). But beyond that, the perception clause means that by definition someone is protected for looking like a woman, not just being one.
In short, there is basically no difference between someone discriminating against you because you are a woman, and someone discriminating against you because they think you are a woman.

Where's the room for "biological reality" in that?
There is a problem here that this probably applies more to people who "pass" than people who don't, but people who don't are still protected under the trans protected category anyway.
But I think it says something about discrimination in general that the law effectively considers discrimination as being based not on who you are, but on who the culprit thinks you are.

There's something that feels very appropriate about that, given the nature of discrimination.
From what I understand, the law is less clear on how discrimination by association works, and it's yet to really be tested, but there is certainly a case to be made that allies could be protected under the relevant characteristics.
Of course perception goes the other way too! A cis woman who is discriminated against for "looking trans" does effectively have the protected characteristic of being trans, because discrimination is not about who you are; it's about who they think you are.
All of this really makes me think of the protest that "Islam isn't a race!"

Religion is also a protected characteristic, but targets of Islamophobia often aren't targeted because of the fact of their religion, but because of the (racist) perception of their religion.
It's pretty well-known that you don't have to actually be a Muslim to be a target of Islamophobia, and the law reflects that.

Parallels can easily be drawn with other forms of prejudice, too.
As it stands, perceptive discrimination can only be direct discrimination: indirect discrimination doesn't count.

That kind of makes sense, though, because only direct discrimination is against an individual; indirect discrimination is more against groups.
Also perceptive discrimination doesn't apply to pregnancy and maternity (for obvious reasons), nor to marriage and civil partnerships.
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