Joint Tenancy and Inheritance Tax for Unmarried Couples

In the excitement of buying a property with your partner, it is unlikely that you have given much thought as to what will happen if one of you dies. It is a morbid subject and probably not something you want to think about.

But while it may be a difficult topic to consider, it is an important one. Without the right planning, it could prove very costly. Here’s why.

Buying as joint tenants

Most cohabiting couples choose to buy their property together as joint tenants. Unless you have told the Revenue otherwise, the assumption is that you each own an equal share of the property, regardless of how much money you each contributed. If one of you dies, the other automatically inherits the other half of the property, making that person the sole owner.

So far, you might not be too concerned. You probably want your other half to inherit your share of the property (if not, you should consider buying as tenants in common instead).

However, then there’s the matter of inheritance tax – also known as Capital Acquisition Tax (CAT).

Inheritance tax for unmarried joint tenants

If one person dies, the other will have to pay tax on everything he/she inherits – including the deceased person’s share of the property. Usually, the first €16,250 is tax free. After this, inheritance tax is charged at a rate of 33% of the mortgage-free value of the property.

You might think this doesn’t sound too scary because you still have a big mortgage on the property. However, here’s the catch – it is compulsory in Ireland to get mortgage protection. This is a type of insurance policy which pays the outstanding mortgage balance, should one of you die before the mortgage is fully repaid.

This means that if your partner dies, the mortgage protection will come into effect. You are then deemed to have inherited 50% of the mortgage-free value of the property. As a result, you could face an enormous inheritance tax bill. So much so, you could be forced to sell the property, just to pay for it.

What about married couples?

Different rules apply to those who are married or registered civil partners. If you have tied the knot, any inheritance received from your spouse is tax exempt.

What can you do?

If you are buying a property with your partner, you might wonder whether there is anything you can do to limit the inheritance tax implications. Of course, you could get married. If this is not an option, there are measures you can take. This includes getting two single life mortgage protection policies instead of a dual policy. You could also explore Section 72 insurance, which is used to cover inheritance tax.

When a joint tenant dies, it may be possible to claim Dwelling House Exemption, although there are strict criteria. For example, the surviving owner must have lived in the property for three years before their partner’s death, and it must have been their main residence. If you do meet the requirements, you will not have to pay inheritance tax.

Contact our solicitors

Very few people realise the inheritance tax implications of buying a property as a cohabiting couple, rather than as a married couple. Solicitors often fail to mention this to clients who are buying a property, despite the potentially disastrous consequences.

If you are an unmarried couple buying a property in Ireland, please contact us at Mullins & Treacy LLP Solicitors. We can explain the tax position in greater detail, outlining the ways in which you can limit your liability. We are client focused and results driven.

Call us on 051 391 488 or email for a no obligation enquiry.

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