We are living in a new increasingly liberal society, one which generations before us could scarcely have imagined. Ireland, once an extremely traditional country now allows divorce and same sex marriage! It is now common place to live together before marriage and increasingly couples chose to set up home together and have their family and not marry.
As it stands at present however, couples who co-habit should be aware of the Inheritance tax implications for unmarried couples.
Did you know that as a co-habiting couple, there are potentially major tax implications to you on the death of your partner, if you receive the proceeds of a life assurance plan your partner holds. Furthermore this would not be the case if you were a married couple.
Royal London (formerly Caledonian Life) carried out research in 2015 which ultimately showed that many co-habiting couples are under the false assumption that if either partner were to pass away that the surviving partner would be automatically entitled to the proceeds of the deceased’s life cover policy, tax free.
However this is not the case; if as the surviving partner, you receive the proceeds of a life policy paid for out of the bank account of your deceased partner, you may be faced with an onerous tax bill.
For example on a life policy of €400,000, the surviving partner could be liable for an inheritance tax bill of €127,025.25 if they have not paid for the life cover premiums themselves. This is due to the fact that as the couple, who are not married, are treated as strangers under tax lax, where the exemption threshold is currently €15,075. This means that any inheritance over the sum of €15,075 is subject to tax at a rate of 33%.
In the event of a claim, Revenue will look for evidence to determine who has been paying the premiums. If it is clear that the premiums are paid from a joint account (into which contributions are credited by both parties), then it is deemed that 50% of the proceeds have been inherited, resulting in a lessor (but still potentially onerous tax bill).
The simple and legitimate solution in this case in order to avoid such a tax liability, is that each partner pays for each others’ life assurance plan, from their own bank account and income. Therefore they are deemed to own that plan and cannot be liable to inheritance tax.
The above is an example of the importance of professional advice in order to ensure your affairs are in order and whilst putting life cover in place is a responsible and often necessary thing to do, it is also important that professional advice is received in order to ensure the correct structure is in place and potential tax implications are foreseen and dealt with.
During our factfinding process we always cover these issues and advise accordingly.
If this is an area which concerns you, please contact us for personalised advice in this respect.