Protection Cover for Cohabiting Couples

The trend for couples to co-habit, rather than marry, has become increasingly more common in Ireland.

Most people are aware that all benefits passing between married couples and registered civil partners are exempt from Inheritance and Gift Tax.

All other cohabiting couples are still treated as strangers for Inheritance and Gift Tax purposes. The stranger threshold for inheritance Tax is €16,750 (Feb 2012). Inheritances in excess of €16,750 are subject to tax at 33%.

Example 1

John Brown takes out Life Cover of €100,000 on his own life and pays the premiums by direct debit from his own bank account. John dies and based on the terms of John’s Will the €100,000 is paid to his cohabitant partner Mary Smith. Assuming Mary inherited no other assets, the liability to tax is as follows: Mary’s taxable inheritance is €100,000. Threshold €16,750 exempt. Balance €83,250 taxed at 33% = €27,472.50 tax due.

Example 2

John Brown and Mary Smith take out “Dual Life” Cover of €100,000 John and Mary are joint owners, and pay premiums out of their joint account. John dies and the €100,000 is paid to his cohabiting partner Mary Smith because she is the surviving policy owner. Assuming Mary inherited no other assets, and Revenue agree that she has paid 50% of the premiums, she will be taxed on 50% of the benefit. So, Mary’s taxable inheritance is €50,000. Threshold €16,750 exempt. Balance €33,250 taxed at 33% = €10,972.50 tax due.

Example 3

Mary Smith takes out a “Life Policy” with Life Cover of €100,000 on John Brown’s life i.e. Mary is the proposer / policy owner with John as the life assured. Mary pays the premiums by direct debit from her own bank account. John dies and the €100,000 is paid to his partner Mary Smith, as she is the legal owner of the policy. Mary has no liability to Inheritance Tax, as she is both the beneficiary and the person who paid the premiums. €0 tax due.