Co-Habiting couples – What you should know.

[Anonymous]

This topic comes up quite a lot, with many people thinking that "new rules" have been applied. Nothing new about the rules, they just seem to get more severe in each budget!

2 Important things to be aware of:

Firstly, jointly owning a house. If a couple who are not married buy a house together with a joint mortgage, the title will usually be held in what is called "Joint Tenancy". This means that in the event of death of one of the couple, their half of the house will pass to the surviving partner. The mortgage protection policy will clear the mortgage and so the property is now mortgage free. But unless three rules are satisfied, the surviving partner could face a very large tax bill! To avoid the tax bill, they must have lived in the house together for at least three years. The surviving partner must continue to live there for a futher six years. They can have no other interest in any other residential property. So if, for example, they also own an apartment or have not lived together for three years in that property, the tax is due. As non-married couples are treated as "strangers" for inheritance tax (under Capital Acquisition Tax rules) their tax-free threshold is only €16,750. So if the house was valued at €200,000 at date of death. They face a tax bill of €24,975 (half the value of the house, less their tax-free allowance and then taxed at 30%!) This would usually result in having to sell the house to pay the bill!

The second important thing in such a situation to be aware of, is a joint life policy. Apart from the mortgage protection policy which would be paid to the lender as in the example above, any other life policy is subject to the same rules but depends on how the premiums are paid! For example, John and Mary have a joint life policy for €200,000 cover. If John dies the policy pays Mary €200,000. However, if the premiums were paid from a joint account (the Revenue check this!) then Mary is deemed to have been given €100,000 and will have the same tax bill as described above, €24,975. If the premiums were paid by John, then she is deemed to have been given €200,000 and would face a tax bill of €54,975. If Mary paid the premium, she is deemed to have paid for all of the cover and will have no tax bill.
An exception to both of these situations since 1st Jan 2011, is that "Registered Same Sex" couples are treated the same as married couples and have no limit to the amount they can leave each other and so would not have a tax bill.
Any questions regarding this topic, feel free to contact me.

Dave.

[Author]

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