By Dave Kavanagh
I often review life cover plans that people have in place and realise that they have been set up wrong. Due to our very dated Capital Acquisition Tax laws, if an unmarried couple have a joint policy, in the event of a claim the survivor could be facing a large tax bill. This is because married couples can give or bequeath any value of assets without there being a tax liability. For a cohabiting couple, they are treated in the “strangers” bracket, which means (in the current tax year) after a threshold of €16,250, any balance is taxed at 33%. So if we take John & Mary as an example, who have a joint life policy with €250,000 life cover, in the event of John passing away, Mary will be paid out the policy proceeds but also now has a tax bill of €77,137.50. Is there any way to be exempt from this tax bill? - The correct advice when commencing cover for an unmarried couple, should be instead of setting up a joint plan, to set up two “life of another” plans. So John takes out a plan on Mary and pays the premiums and Mary takes out a plan on John and pays the premiums for that. When done this way, if the same as above happened and John passed away, Mary is deemed to have paid for the cover herself and so is not liable to pay any tax, meaning she receives the full €250,000 policy proceeds and no tax bill. It’s worth also noting that unmarried couples that buy a house together can face a similar problem if one of them passes away. The survivor that inherits the deceased’s share of the property may then be liable to pay tax on that portion of the property. There are ways to plan for this and to be exempt. If anyone is in either of these situations, please get in touch for advice.
Dave Kavanagh QFA has been advising people financially for over 25 years. For quotes or information (with no cost or obligation) he can be contacted by emailing firstname.lastname@example.org or use the contact form on www.financialcompanion.ie or phone 087-6414570, or @Davekav_advice on Twitter and Instagram. Combined with his previous role of gym/nutrition adviser, he regularly gives talks and workshops at seminars and events for groups, companies and government departments on financial wellbeing, positivity and motivation. As heard on RTE 2FM and TV3.