Co-habiting couples paying too much Inheritance Tax

Unnecessary Inheritance tax created by couples buying Life assurance for Family protection purposes.

Recently as part of a client review I came across an all too common situation. My clients were in a relationship but not married, or in a civil partnership. However they considered themselves as spouses.

The inheritance tax act does not however consider them spouses under the meaning of the act. They are in fact known as Strangers and as such have the lowest Inheritance tax threshold of €16,750.

They had taken out a dual life family protection cover through their bank of €100,000. I explained to them that on death of either of them half of the death benefit would be treated as a liability for the payment of inheritance tax. The plan was being paid for from their joint bank account to which they both contributed. The resulting tax liability would be approximately €9,975.00.

This could have been avoided had the following been done:

  1. Each member of the couple takes out a life policy making their partner the owner of the policy.
  2. Each person pays for the policy from their own bank account and from their own independent income.
  3. This is recognised by the revenue as being a legitimate protection arrangement for the couple and does not become liable to inheritance tax.
  4. Resulting saving of €9,975.00 inheritance tax liability which will be usually badly needed by the surviving member of the couple and children.

I am sure there are lots of co-habiting couples in Ireland who have created an inheritance tax unwittingly by not taking advice from an Independent Insurance Doctor and professional.

The government are of course delighted with the additional revenue in these straightened times!

Kieran Murphy

The Insurance Doctor