Cohabiting Couples: if you don’t like this, put a ring on it!

The legal system here in Ireland doesn’t recognise cohabiting couples in the same way as it does married couples or civil partners. There is no such thing as “common-law” husband and wife and cohabiting couples are treated as strangers under Irish tax law. Whilst a large majority of the Irish population, 79% in fact (Source; Royal London 2016) support the changing of the tax system for cohabiting couples; this is currently the law, as it stands.
There are numerous reasons why couples decide not to tie the knot (excuse the pun), and the facts are we are now living in a more liberal society. With legislative changes removing the ban on divorce here in Ireland coupled with the recognition of same sex marriages, the fact is more and more couples and family units with children are living together, but not married. There were 31,296 cohabiting couples in Ireland in 1996, by 2011 that number had risen to 143,600 (Source CSO) and is continuing to rise sharply ever since.

So what? You may well ask: Well, from my experience of dealing with this issue over quite a number of years, it is blatantly obvious that a large number of these cohabiting couples are totally unaware of the devastating inheritance tax liabilities that could arise should one of them die. When death arrives at the door of a married couple or civil partner arrangement there is absolutely no tax liability as assets can be transferred completely free of tax on death between spouses/civil partners. When the surviving partner is one from a cohabiting couple however, then they are treated as a stranger for Inheritance Tax purposes and have a minuscule tax-free threshold of just €16,250.
So, let’s consider a couple who own their property valued at €400,000 and one of them dies. The surviving partner is assumed to have inherited half this family home which although they previously may have bought, lived in and shared together, half or €200,000 of the value is treated as an inheritance with just the first €16,250 exempt. The balance is subject to a punitive tax rate of 33% so in this case, there will be a tax liability of €60,637 falling due on the surviving partner.

The same applies to other assets such as mortgage protection or other life assurance pay-outs! While some cohabiting parents of children may think they’ll be financially secure in the event of one of them dying, they may need to revisit their plans in light of this article. A cohabiting couple with €500,000 joint life cover in place to cover loans and provide for young children mightn’t have considered or budgeted for the fact that in this instance there would be a €77,138 inheritance tax liability due on the pay-out. There is a correct way to set this up or we can rearrange your existing insurance plans so that they do not attract this inheritance tax liability, so if you’re concerned, simply contact us today. Alternatively, if this doesn’t impact you directly, but you know of others who may be affected, please share this blogpost with them.
Another point to be noted here is that the survivor within a cohabiting arrangement is not entitled to a widow/ers pension in the same way a survivor from a married or civil partner arrangement would be which from March 2017 is €198.50 per week with additions for child dependents, so (they may be entitled to other social welfare benefits however) a real Double Whammy!
As I see it, cohabiting couples and particularly those with children really need to speak with either one of the following, and preferably today. A Certified Financial Planner or a Parish Priest! This is clearly one of those areas where doing nothing can cost you dearly.
A Certified Financial Planner is an excellent point of contact for any cohabiting couples looking to establish if or how much of a potential tax liability they may be facing and possibly rearrange a few things to mitigate or eliminate this Inheritance Tax liability altogether particularly when making financial decisions or looking at planning your Financial Future.

Get in touch today to arrange your free Discovery Meeting consultation.

Paul is the Managing Director of Lifestyle Financial Planners Ltd, has been in business since 1985 and offers specialist, tax efficient wealth management, retirement and estate planning solutions to our customers. Paul is a Certified Financial Planner and holds a Masters Degree from UCD in Financial Services and Risk Management.
Tel: 096-75951 Mob: 086-8053755, Email: paul@lifestylefinancialplanners.ie web: www.lifestylefinancialplanners.ie
Please share this blogpost if you think it has been informative or contact us directly if you have any personal Financial Planning queries. Email if you would like us to discuss or explain a specific topic in a future blogpost.

Waiver: The information contained in this article is for general information only and cannot be relied upon as the basis for any form of agreement or advice. Paul recommends engaging professional tax, legal or financial planning advisory services relevant to your own specific and particular circumstances.

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