Unmarried homeowner couples may face a huge tax bill if tragedy strikes

UNMARRIED couples who have purchased a house together have been warned that they could be hit with a tax bill of as much as €30,000 if one of them passes away.

Four out of five first-time buyers over the last few years have been unmarried couples, say experts.

They said co-habiting couples need to share the payment of each other’s protection premiums or face major tax bills in event of premature death.

Advisor with Alliance Insurance Brokers, Dave Kavanagh said that with a house worth €400,000, one party could be liable for a tax bill of €45,849 unless the mortgage and policy arrangements have been put in place correctly.

If a co-habiting couple have a joint life policy, in the event of death, one party may be deemed to inherit some or all of the proceeds of the policy, depending on how the premiums were paid and Revenue will look for evidence to determine who has been paying the premiums.

“If it is clear that the premiums were paid from a joint bank account and contributed to by both parties, then it is deemed that 50% of the proceeds have been inherited.

“They are however defined as a stranger and their tax-free allowance is just €16,604, so they are liable to pay 25% tax on the value of the share of the house above that amount.”

Head of sales and marketing with Caledonian Life, Greg Dyer said there is a solution to this tax conundrum, whereby each partner pays for the other’s life assurance policy on their mortgage.

“In this scenario, where one partner paid the premiums but the other partner died, there would be no tax liability as it would be deemed that the surviving partner paid for the benefits and therefore is entitled to the proceeds,” he said.