According to the CSO, the average age people are getting married at has increased from 37.4 years of age in 2018 to 38.2 years of age in 2021. In addition, there has been a growing trend over the years of couples choosing to co-habitat, whether for a number of years before they marry or simply as a lifestyle choice. This is a trend that is likely to continue. What is very clear is that people are marrying later in life than would have been the case in the past. Whilst the age couples are getting married at is increasing, so too is the price of property. For many young couples today the reality is that in order to get on the property ladder, two incomes are required. The net effect is that there is an increasing trend of unmarried couples buying homes together. It is vitally important however that such couples are aware of potential taxation pitfalls that can arise.

CAT and Marriage

Married couples have a significant tax advantage compared to unmarried couples/co-habitants from an inheritance and gift tax point of view. Gifts/inheritances between spouses are automatically exempt from CAT. For some unmarried couples, it may come as a surprise that gifts and inheritances between unmarried couples are not covered by this exemption. From a CAT perspective, unmarried couples are considered strangers in blood with the tax free lifetime gift/inheritance threshold currently standing at €16,250. Inheritances in excess of this are subject to tax at 33%. On the death of a non-married partner in the absence of any reliefs, inheritance tax will be payable on the total value of all assets inherited by the surviving partner, regardless of how long the couple have lived together. This could result in a considerable tax bill on any assets inherited, including the family home.

The spousal exemption was thrown into the international spotlight in 2017 when two Dublin friends entered into a same sex marriage to facilitate estate planning. One of the individuals was the carer for the other. As a result of the marriage, it is estimated that one of the men saved circa €50k worth of inheritance tax that would have arisen if they were not married. This very clearly highlights the tax savings that are available for married couples and should also act as a warning for co-habitants to be aware of potential tax pitfalls.

Whilst CAT may not be at the forefront of the minds of unmarried couples/co-habitants when buying a home, it is important that they are aware of some planning opportunities that can mitigate against unwelcome tax liabilities in the future. This is particularly relevant when one considers that for many people, their home will be the most significant asset of their estate.

Assets Passing on Death

When considering the tax implications for the surviving partner on inheritance of the family home, it is first necessary to determine whether the property is owned under a joint tenancy or tenancy in common. These are legal concepts. Whilst they may appear to be very similar to the layman, they operate very differently in law.

A joint tenancy means both partners co-own the property in equal shares. Assets owned as joint tenants fall outside the estate and pass by survivorship. If one joint tenant dies, the other joint tenant will automatically inherit the other party’s share in the property. If the property is owned under a tenancy in common, both partners own a defined share in the property. The surviving co-habitant does not have an automatic right to the share of the property of the deceased. Each co-habitant can leave their share of the property to whoever they wish in their will. If one of the tenants in common dies intestate (without a will), then their share of the property becomes part of their estate and passes under the rules in the Succession Act. This can lead to a number of complications including potential sale of the house in order to allow for the administration of the estate. It is important that co-habitants obtain independent legal advice.

Whether the property passes to the surviving partner by survivorship, under a will or under the rules of intestacy, the CAT treatment is the same. The inheritance of the property by a surviving co-habitant will be potentially subject to CAT. In addition to any CAT that potentially arises on the inheritance of an interest in the property, there can also be tax consequences for the surviving co-habitant in respect of proceeds received from a life assurance policy. For this reason it is important to get advice when taking out life insurance for mortgage purposes as it is may be possible to structure in a more tax efficient manner.

Potential Reliefs

There are however certain ways of mitigating the significant tax costs that may arise. There is a very valuable relief that may remove the CAT arising on the inheritance of a property known as “dwelling house relief”. For the relief to apply, the following conditions must be satisfied:

• The house was the only or main residence of the person who dies (this condition does not apply if you are a dependent relative). 
• The surviving partner lived in the house as their only or main home for the three years immediately before the date of inheritance. 
• The surviving partner does not have an interest in any other house. 
• The surviving partner does not acquire an interest in any other property from the deceased partner. 
• The house continues to be the surviving partners only or main home for 6 years after the date of inheritance. This condition does not apply to individuals aged over 65, individuals who are required to move by reason of employment or individuals who are required to live elsewhere because of mental or physical infirmity as certified by a doctor.

Therefore, the family home may be exempt from inheritance tax if both partners meet the above conditions. It is important to review both partners’ circumstances to ensure the relief can apply. For example, even if the surviving partner owns a small share in another property this can displace the relief.

Alternatively it may be possible to reduce the exposure to tax by setting the life insurance plan as a “life of another” plan or by effecting a “Section 72” Life Assurance plan. The S72 plan effectively provides that as long as the proceeds are used to pay a CAT bill it is exempt from CAT. Specific legal and tax advice should always be obtained.

Conclusion

Ireland is currently experiencing a generational and societal shift in relation to marriage and family. The traditional concept of family has fundamentally changed. It is vitally important however that consideration is given to succession plans and potential tax pitfalls. It is good practice to have a succession plan in place and to keep it under review, having regard to key life events. Always ensure that tax and legal advice is obtained.

Contact Us

If you would like to know more about the tax implications of the above, contact our Tax Team:

• Ann Marie Ryan, Tax Manager, (01) 6440100
• Patrick Keegan, Wealth Management Director, (01) 6440100

Disclaimer: While every effort has been made to ensure the accuracy of information within this update is correct at the time of publication, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this update and shall have no liability whatsoever. The information contained in this update is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this update without appropriate professional advice.