The financial attraction of being a married couple

By March 19, 2017 No Comments

“Marriage is a wonderful institution but who wants to live in an institution” is a bon mot attributed to comedian Groucho Marx. However couples who want to maximise their after-tax income and assets should seriously consider the legal (rather than the moral) bonds of wedlock.

For a couple who “live together” and earn roughly similar incomes there is no income tax benefit to being married. However, if their circumstances change and the income of one of the partners significantly exceeds that of the other in any year then being married becomes financially attractive.

Two people living together are seen as two single people in the eyes of the taxman here in Ireland. Each is an individual for tax purposes with his or her own reliefs and allowances.

However, if they are married they can be jointly assessed for Income Tax. This means that any unused allowances of one partner can be utilised by the other.

So two people earning €45,000 each will pay the same tax whether they are married or not. However if he is earning only €25,000 and his partner much more than that, he can transfer the allowances to the partner who pays the 20pc rate on more income if they are married. No such transfer of allowances is possible where a couple is unmarried. The net effect is 20pc of the allowance transferred.

In the event of the death of one partner in a couple the tax treatment is even more stark. As a single person the survivor of a couple will be expected to pay tax at the rate of 33pc on the excess over €16,250 of the deceased person’s estate (assuming a will has been made naming the survivor as beneficiary). This is potentially a massive tax bombshell for a co-habiting but unmarried couple. The survivor would be landed with a tax bill of €66,000 on an estate of €216,250.

A child of this couple could receive €310,000 free of tax on the death of a parent.

If the couple are married then bequests from one partner to the other are tax free. A single survivor of an unmarried union may also lose the roof over their head if proper planning is not done. If a couple do not want to marry for a particular reason then assurance policies on each one’s life is one way in which to make provision for the possible future tax implications.

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