Capital Acquisitions Tax

Qualifying Cohabitants

Increasingly in modern society more people are opting to live together and not to marry. This gives rise to particular tax and legal considerations. For example, under the Succession Act 1965, a spouse has an automatic entitlement to a share of their deceased’s estate where the deceased dies intestate (without a will) or an entitlement to a “legal right share” where the deceased dies testate. However, a cohabitant (a person living with another person in a non-marital relationship) has no automatic succession rights under Irish law.

From a taxation perspective, generally the transfer of assets between married persons is exempt from CAT. This CAT exemption does not automatically extend to cohabitants. For CAT purposes, cohabitants are regarded as “strangers in blood” with the effect that transfers between such cohabitants do not qualify for the exemption from CAT and are subject to the Group C CAT threshold, which is currently €16,250.

The Civil Partnership and Certain Rights and Obligation of Cohabitants Act, 2010 (Civil Partnership Act 2010) provides in Part 15 that “qualifying cohabitants” (as defined in the Civil Partnership Act) can apply to Court for a form of redress, including for the transfer of assets pursuant to a property adjustment order as well as an order for provision to be made from the estate of the deceased cohabitant. Following on from the Civil Partnership Act 2010, the Finance Act 2011 introduced S.88A Capital Acquisitions Tax Consolidation Act (CATCA) 2003. This section provides that a gift or inheritance taken by virtue of or in consequence of an order made under Part 15 of the Civil Partnership 2010 Act by a qualified cohabitant is exempt from CAT. Therefore, whilst there is no automatic entitlement to exemption from CAT, transfers airing on foot of such orders are exempt from CAT.

The provisions of Part 15 of the Civil Partnership Act 2010 were considered in detail in a recent case of DC v DR (2015 IEHC 309). In this case the deceased died intestate and an application was made by the deceased’s cohabitant for a share of her estate under the Civil Partnership Act 2010. Based on the facts of the case, the Court awarded the qualifying cohabitant 45% of the estate. By virtue of S88A CATCA 2003, such an award should also then have been exempt from CAT.

It is also worth nothing, that where assets are owned by cohabitants as joint tenants (as distinct from tenants in common), the jointly owned assets do not automatically form part of the deceased’s estate and can pass to the surviving joint tenant by “survivorship” (subject to the presumption of resulting trust that can arise in certain instances). There can be a misconception in some quarters that CAT does not arise where assets pass in such a manner. However, from a CAT perspective the surviving joint tenant is deemed to take an inheritance from the deceased of their share in the joint assets. This can give rise to quite a shock for the survivor when they take into account the scale of the Group C CAT threshold.

This is a particularly complex area and it is recommended that professional legal and tax advice is obtained prior to putting in place a succession plan to ensure that loved ones are provided for and reliefs from CAT are being availed of.

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Ronan McGivern

Taxation Partner

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