Financial Hazards for Unmarried Couples

Financial Hazards for Unmarried Couples

Unmarried Couple Advice

Unmarried Couple

Financial hazards are one of the main reasons that couples argue. However, it’s also one of the most important areas where clear communication is a must between couples.

Therefore, Dermot Staunton who is one of our financial advisors has shared some advice on the subject.

  1. Gift/Inheritance Thresholds – (Note: Group C relates to unmarried couples)

> Group A – €320,000: 

Applies where the beneficiary is a child e.g. adopted child, stepchild, and certain foster children. Parents also fall within the threshold where they take an inheritance of an absolute interest from a child.

> Group B – €32,500:

Applies where the beneficiary is a brother, sister, niece, nephew, lineal ancestor or lineal descendants.

> Group C – €16,250:

Applies in all other cases.

As you can see, unmarried couples fall under Group C.  This means that any transfer of wealth between unmarried couple’s over the value of €16,250 will be liable for Capital Acquisition Tax (CAT). This is currently at a rate of 33%.

  1. Mortgages

Unmarried couples buy properties as “Tenants in Common” or as Joint Tenants which means that each individual has a specific percentage ownership of the property. In applying for a mortgage, it is unlikely that a bank would treat married couples or unmarried couples any different. Typically a bank concentrates on areas such as repayment capacity, net disposal income levels, level of deposits, and loan to values of the property.

Problems only tend to arise in the event of a death. Therefore, it is extremely important for both unmarried and married couples have a Legal Will in place.

  1. Legal Will

Married couples or civil partners, in the event of death, are under the Succession Act 1965. This means that they are entitled to a share of the deceased estate. This does not apply to cohabiting couples and therefore the construction of a Will is very important to maintain their current assets.

  1. Dwelling House Exemption

An important exemption for unmarried couples is the Dwelling House Exemption which was introduced in the Finance Act 2016.  According to the Act, you will be exempt from CAT on a house you inherit if:

  • The house was the only or main home of the person who died.
  • You lived in the house as your main home for the 3 years before the persons death.
  • You do not own, have an interest or a share in any other house, including one you acquired as part of the same inheritance.
  • The house is your main home for 6 years after you receive the inheritance. This does not apply if you are over 65.
Solution:

To avoid a financial loss, it is recommended that in the event of your partner’s death, and to maintain you and (if applicable) your family’s standard of living, you should establish a life cover policy on your partner. This would provide peace of mind to all concerned.

To avoid having to pay CAT on the proceeds of such a policy, we recommend that unmarried couples take individual life cover out on their partner.

This is referred to as a “Life of Another” life cover policy.

How much life cover? Each case is different. However, a good rule of thumb would be based on the partners net salary and the number of years to retirement e.g. age 45, net salary €35,000 and retiring at age 60 (15 years to retirement), this amounts to a sum assured of €525,000 (35k x 15).

If you wish to contact Dermot for financial advice, you can reach him in our Galway Office on 091 759500 or on his mobile at 086 8668988.

Alternatively, you can request a callback on our website today.