Cohabiting can be costly for couples: why it pays you to get hitched when it comes to personal tax, inheritance, housing and investments
Gabrielle Monaghan
The Irish Independent
2nd July 2023
Mae West once quipped, “Marriage is a fine institution, but I’m not ready for an institution”.
The summer wedding season may be in full swing, but more Irish people are echoing the sentiments of the Hollywood screen legend, eschewing marriage altogether in favour of long-term committed relationships; there were 152,000 cohabiting couples recorded in the 2016 census, up 6pc from 2011. This has led to a seismic shift in the concept of a family, with more than two-fifths of babies born outside of marriage in 2022.
While weddings may be expensive – the average shindig costs €25,000 to €30,000 – and a failed marriage can have a catastrophic impact on someone’s finances, married people enjoy far greater fiscal and financial benefits over their lifetimes than partners who live together.
“A common misconception is that long-term cohabitants can enjoy tax advantages if they are deemed ‘common law spouses’, says Kieran McAuliffe, a director at Provest Private Clients.
“This is correct for some other jurisdictions in the world, but the term ‘common law’ has no relevance in Ireland.”
With that in mind, here are some of the key financial, legal and tax perks to saying ‘I do’.
Rights to the family home
When a spouse dies, the surviving partner has a legal right to a share of the family home and other assets, even if there is no will, thanks to the Succession Act 1965. Even separated people who are in a new relationship could claim a share of the home they once shared with their late spouse.
“The fact you are separated doesn’t preclude you from claiming your legal share,” says Caitriona Gahan, a senior associate at law firm Lavelle Partners.
But people who have lived together for decades without getting married can discover after their partner dies that they have no automatic right to a share of the family home. A cohabitant would need to be named specifically in a will to inherit a share of the property and have to pay capital acquisitions tax (inheritance and gift tax).
The surviving partner’s right to a share of the home would depend on how they had registered the ownership of the property, says Marian Ryan, consumer tax manager at Taxback.com.
“If they had registered a joint tenancy and a co-owner dies, their interest in the property will automatically pass to the surviving joint tenant,” she says. “If they had registered as tenants-in-common and one of the co-owners dies, their share of the property does not automatically pass to the surviving living owner, but rather will form part of the deceased owner’s estate and pass to their beneficiary.”
No inheritance tax
Married couples and civil partners command a significant tax advantage compared to cohabiting couples when it comes to inheritances: if one of them dies, all assets transfer to the surviving spouse completely tax-free.
But the surviving partner in a cohabiting couple faces paying CAT at a rate of 33pc on any anything they receive above the value of €16,250. That’s because even if a deceased partner provided for you in their will, you are regarded as Class C – or strangers – in the eyes of the law. This could result in a considerable tax bill that may force you to sell the family home, unless you qualify for the dwelling house tax exemption, which would make you exempt from inheritance tax if you meet certain conditions. However, couples who meet later in life after the breakdown of a first marriage sometimes fail the rules for the dwelling house exemption because they own, or have owned, a separate property.
If your cohabiting partner dies without providing for you in their will, you can apply to the court for provision to be made from the deceased’s estate. To do so, you must have been in an intimate and committed relationship for at least five years, or two years if you had a child together.
“If they had decided to be nasty and not leave you anything, you could apply to court and if you get an order you would get it tax-free,” Gahan says. “But you must show you were financially dependent on them and show that the deceased was maintaining you.”
You can share income tax concessions
Even Revenue is happy when you tie the knot: it will give you tax relief, known as the year-of-marriage tax credit, to acknowledge the occasion. You can claim this tax refund if the tax you paid as two single people in the year you got married is greater than the tax you’d have to pay if you were taxed as a married couple.
Indeed, married couples and civil partners can save thousands every year if one spouse doesn’t work outside the home or earns significantly less than the other and the couple opts to be jointly assessed for income tax. Cohabitants, by contrast, are treated as if they are single for tax purposes.
Under joint assessment, if only one spouse or civil partner has taxable income, all tax credits and the cut-off point for the standard tax rate of 20pc are given to the earning partner. A household in these circumstances could earn as much as €49,000 before reaching the higher 40pc tax rate. This means the married earner in a one-income household can earn €9,000 more at the 20pc rate than a single person can.
Joint assessment is particularly advantageous in a dual-income household where one spouse is earning less than €31,000, such as by reducing their working hours to care for the children, and the other is a higher earner, McAuliffe says.
“The assessable spouse can then earn up to €49,000 at the 20pc rate and the non-assessable spouse can earn up to €31,000 at 20pc,” he says. “Effectively, a married couple can earn up to €80,000 at 20pc even if one only earns €31,000. But if you’re cohabiting and one person earns €31,000, the couple can only avail of €71,000 at the 20pc tax rate as they cannot pass on the unused threshold to each other.”
A married couple is also entitled to €3,550 worth of tax credits under joint assessment – twice the single person tax credit of €1,775.
You can offset investment losses
Profits made on the disposal of an asset, such as a rental property or any other investment, are normally taxed at 33pc. But if you’re married, you can transfer gains or losses from an asset to your spouse without paying capital gains tax (CGT). Married couples can reduce a tax bill by using a loss made by one spouse to offset any CGT charged on profits from an investment by the other spouse. Cohabitants cannot manage their wealth this way.
It is even worse if you are single
The tax code may prioritise married couples over cohabiting couples, but single people face other financial penalties for not being married.
Aside from paying significantly more tax proportionally than married couples on one income, singletons who live alone cannot split household costs with a significant other. These bills range from the rent or mortgage (assuming a single income qualifies them to borrow enough to buy a home) to energy, insurance, local property tax, internet and streaming subscriptions. Then there’s the dreaded single supplement for going on holidays or attending a wedding, with a hotel room for one costing the same as for two people.
UK research published by Hargreaves Lansdown in January found that single people spend an estimated £860 (€1,003) more on monthly bills than couples who live together. And Irish statistics indicate that inflation is hitting single adults more than other demographics: one-adult households faced price hikes of 8.5pc in the year to March, compared to 7.6pc for households with two adults and between one and three children, Central Statistics Office (CSO) data showed in May.
The single tax is more pronounced for single women, who live longer than men but earn less than them, on average. Women are also less likely than men to have a private pension.
“When you get to state pension age, it’s a lot easier to run a household on two state pensions than on one,” McAuliffe says.