Protection for unmarried couples

Do unmarried couples have enough protection?

The problem

1 in 10 adults in Ireland are co-habiting.

Are some of your clients in this group? Most people are aware that inheritances passing between married couples or registered civil partners are exempt from inheritance tax. This exemption only applies for legal spouses and registered civil partners. All other co-habiting couples are treated as strangers for inheritance tax purposes.

The ‘stranger’ tax-free threshold for inheritance tax is, in 2013, €15,075.

Inheritances (in 2013) that are in excess of €15,075 are subject to tax at a rate of 33%.

For example:

John and Mary buy a home in joint names. They contribute equally to the deposit, the mortgage repayments and the joint mortgage protection policy. The home is valued at €300,000.

John dies in the first year of their living together. The mortgage is cleared by the mortgage protection policy.

Mary inherits 50% of the property, assuming it was owned as joint tenants.

Mary’s tax-free threshold is €15,075, with the balance of €134,925 taxable at 33% resulting in a tax bill of €44,525.

The solution

Increase mortgage protection policy by €45,000 (but there’s a possible tax charge on that money, €45,000 at 33% = €15,000) or;

ask your broker about taking out a “life of another” policy for €45,000.

Good Financial Housekeeping – Email if you would like further information.

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