5 Questions Every Unmarried Couple Needs To Ask When Buying a House Together

Mortgage Protection for Cohabiting Couples

Listen to the intro:

Cohabiting couple.

It’s surely the unsexiest way of referring to living with your other half.

Given how expensive mortgages and weddings are, many people are choosing one or the other—or neither, in some cases.

In fact, the number of cohabiting couples (oof, there it is again) is actually on the rise. Census data from 2022 count over 170,0000 cohabiting couples in Ireland, up 17 per cent from 2016.

Sure, you might be perfectly happy in your unwedded bliss, but you do need to consider certain tax ramifications.

1. Should You Get Married to Pay Less Tax?

I’m not saying you should get married because you’d have to pay less tax, but I’m also not-not saying you should get married because you’d have to pay less tax!

Try it on any tax calculator, and you’ll see what I mean.

Let’s consider Tony.

Tony is 37 and living in sin with his other half, Carmela.

Tony earns €50,000 a year.

As a singleton, Tony is looking at net earnings of €3,233 a month.

If Tony were married, the money he would take home would jump to €3,366 due to the tax treatment of married couples.

Tax advantages are wildly unromantic reasons to get married, but the world needs pragmatists, too!

The perils of not being married also kick in around mortgages.

If you’re buying a house as a couple, you’ve two options: a single or joint mortgage.

All being fair, you’ll likely go with a joint mortgage, so both of your names are on the deeds.

Plus, with a joint mortgage, your earnings are added together, making it easier to prove repayment potential.

Part of the process of buying a house in Ireland is buying Mortgage Protection.

It’s fairly straightforward: you pay money for an insurance policy that will clear the mortgage if you (or your other half) pass away.

Cohabiting or otherwise, you’ll have to get it.

I will say this: don’t let your bank bamboozle you into buying their mortgage protection.

The banks are tied to one insurer – but to get the best price, you should look at ALL the insurers’ policies.

Of course, you can also ask a friendly neighbourhood broker to do it for you.

Much less of a headache – and less pocket ache, too, as they can get you a better deal.

2. How Much Inheritance Tax Will You Pay?

The Mortgage Protection bit is fairly straightforward, but there’s a potential sting in the tail called Inheritance Tax, which is a reality for many couples.

Inheritance tax will be payable if one of you passes away in the first three years of the mortgage.

I know it’s a bit grim to skip straight to one of you dying within three years of getting the mortgage, but it’s a consideration: if you or your other half passes away, anything the surviving partner receives is subject to Inheritance Tax.

Unless you’re married!

Ouch.

If you’re not married, the most you can inherit tax-free from your partner is €16,250 – so if you’re left a house, expect to be hit with a whopper tax bill at a rate of 33 per cent on the balance.

As of 2024, the average mortgage size for first-time buyers in Ireland is approximately €285,000.

Let’s do the maths:

€285,000 – €16,250 = €88,687 must be paid in inheritance tax if one of you passes away in the first three years of the mortgage.

Aye, curumba!

Let’s say Tony, who we mentioned earlier, gets a €200,000 mortgage with his other half on a €350,000 house.

Sadly, Carmela dies, in mysterious circumstances, a couple of years in.

The Mortgage Protection would kick in and pay off the rest of the mortgage, and Tony would inherit the house.

Revenue would rule that Tony has inherited  50% of the property’s mortgage-free value, which is €175,000.

Tony would face an inheritance tax bill of €52,387 which is 33% x  [€175,000 – the tax-free allowance of €16,250]

3. How can Cohabiting Couples Reduce their Inheritance Tax Liability?

Life of another mortgage protection policies

Tony and Carmela should have bought two single life of another mortgage protection policies and paid each other’s premiums from their own funds.

Had they done so, Tony would be deemed to have inherited 50% of the NET VALUE of the property i.e. 50% x (property value €350k – €200k mortgage) = €75,000

In this circumstance, the tax liability would be just €19,461  (33% x (€75,000 – €16,025)) instead of €52,775.

That’s a €33,314 saving.

Granted, the premiums on two single-life policies will be higher than one dual-life mortgage protection policy, but still, if the worst happens, you will save thousands.

4. How Do You Pay the Remaining Inheritance Tax Bill?

As you can see, taking out two single-life policies will reduce the potential inheritance tax bill but won’t eliminate it.

To pay the inheritance tax bill, you have  two options:

a) increase your mortgage protection by the amount of the potential inheritance tax

or

b) take out separate life insurance policies to pay the inheritance tax.

5. Can You Take out a Dual Life Policy When You Get Married?

Yes, but the premiums on a dual-life policy could be higher than you currently pay for two single policies.

If you take a while to walk down the aisle, your age will count against you should you apply for a dual-life plan.

It might make more sense to keep the two single-life policies, but from a tax point of view, there’s no difference.

Once you’re married, there’s no tax liability between spouses, regardless of how your policies are set up.

But, if you can save a few quid, there’s nothing to stop you from swapping the two single policies for one dual policy.

The final thing to take into account is your health.

If you have suffered any health issues since you married, it would make more sense to stick with the single life plans.

5. What Happens After Three Years?

The dwelling house exemption kicks in.

What is the Dwelling House Exemption?

The Dwelling House Exemption in Ireland allows you to inherit or receive a house as a gift without paying Capital Acquisitions Tax (CAT) if certain conditions are met:

Living in the House: You must have lived in the house as your main home for three years before you receive it.
Keeping the House: After you inherit or get the house as a gift, you must continue to live in it for at least six more years.
Only Home: The house must be your only home, and you shouldn’t own or inherit another home during this period.

This exemption helps people keep their inherited home without having to sell it to pay taxes.

You can read more about it on Citizens Information.

Over to you…

Yes, Inheritance Tax is fairly ridiculous, but the rules are the rules.

That’s not to say that there aren’t ways around it.

As with all tricky tax issues:

We advise that you seek professional legal and tax advice as the information given is a guideline only and does not take into account your personal circumstances. There could be other assets and inheritances passing on death  which could cause a CAT liability.

And if you are one of the unmarried cohabiteurs (pronounce it like it’s French, and it’s a bit less terrible), make sure you get a good deal on your Mortgage Protection.

You’ll have no control over some things – getting a good deal on your Mortgage Protection isn’t one of them!

If you’d like me to take a look at your personal situation and recommend the types of cover you should consider, complete this questionnaire, and I’ll be right back.

Of course, the obvious option to avoid inheritance tax is to get married or civil union-ed.

Thanks for reading

Nick

Edtor’s note: We first published this blog in 2021 and have updated it since.