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Are you living with your partner?

June 11, 2013

1 in 10 people are co-habiting in Ireland. Are you one of them?

Did you know that unless you are married or in a registered civil partnership, you have no automatic right to each other’s estates on death. Even if you can apply for provision from your deceased co habitant’s estate, you will still have to pay inheritance tax on it. Cohabiting couples are treated as strangers for Inheritance and Gift Tax purposes. The stranger threshold for inheritance tax is currently €15,075.

 

Example 1

 

John & Mary bought a house in joint names. They paid the deposit, mortgage repayments and joint mortgage protection equally. John dies in the first year of the mortgage, the proceeds of the mortgage protection policy pays off the house which is currently valued at €125,000. Mary inherits 50% of the property (assuming held as joint tenants) which is valued at €62,500.

 

The inheritance tax threshold for Mary in relation to this inheritance is €15,075.

€62,500 – €15,075 = €47,425

€47,425 x 33% (current inheritance tax rate) = €15,650.25 = Inheritance Tax

 

After 3 years family home relief may apply assuming all conditions are met.

 

Example 2

 

John takes out a life policy on his life for €200,000. He pays the premiums and he stipulates in his will that the proceeds of this policy are to be left to his co-habitant partner Mary. John dies.

 

The inheritance tax threshold for Mary in relation to this inheritance is €15,075.

€200,000 – €15,075 = €184,925

€184,925 x 33% (current inheritance tax rate) = €61,025.25 = Inheritance Tax

 

Example 3

 

John & Mary take out a dual life policy providing €150,000 of life cover and they pay their premiums from their joint bank account. Mary dies and €150,000 is paid to John as he is the surviving policy owner. Assuming John inherited no other assets and Revenue agrees that he paid 50% of the premiums he will have to pay inheritance tax on 50% of the benefit.

 

The inheritance tax threshold for John in relation to this inheritance is €15,075.

€75,000 – €15,075 = €59,925

€59,925 x 33% (current inheritance tax rate) = €19,775.25 = Inheritance Tax

 

There are solutions to these potential tax liabilities so if any of these situations are likely to apply to you please contact Paul or Rose for further information.

 

 

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