Inheritance tax for cohabiting couples.

Since the introduction of Civil Partnership in Ireland in 2010 same-sex couples can register their relationship and as a result enjoy the same inheritance tax treatment as married couples. However, co-habiting couples of the opposite sex are not covered the logic presumably being they could theoretically get married. Therefore in the event of the death of one of the co-habitants the surviving partner will only have the Group C inheritance tax threshold (€15,075) tax free with the rest of their inheritance taxable. Clearly this is potentially a financial nightmare at a time of great stress. Setting up Life Policies to address this situation is somewhat complex and needs careful attention. Let's say the female has her own life policy for €200k and is leaving everything to her boyfriend. Revenue will treat that inheritance as taxable other than the first €15,075 so 33% tax would be payable on €184,925 = €61k. That's a lot of money to have to pay to the taxman. You might think setting up the policy as jointly owned (and paying from a joint account) would solve this issue but unfortunately it doesn't as Revenue would still consider each person to own 50% of the policy and therefore they would potentially be inheriting the other 50%. The solution is to set the life policies up on a 'Life of another' basis with each person insuring the other and paying for it personally. Now the policy is clearly owned by the person who is paying the premium and therefore there will be no inheritance tax liability.

If the couple own a home together and neither of them own any other property or % of a property whether solely or jointly on the date of inheritance they can avoid inheritance tax on inheriting the % of the home which belonged to the other if they lived there for 3+ years immediately prior to the inheritance and they continue to live there for 6 years after the inheritance. 

In our experience dealing with cohabiting couples they rarely have their life cover set up correctly and as the above illustrates this can be very detrimental.


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