What is Mortgage Protection?
Mortgage Protection Insurance covers the amount owed on the mortgage, should the mortgages borrower pass away, before the mortgage has been repaid in full. If there are two people named on the mortgage, the insurance is paid when the first person dies. Perhaps the biggest reason to take out Mortgage Protection Insurance is to avoid any situation where the mortgage borrowers dependents are left with debts they simply cannot afford, or in the worst case scenario, their home gets repossessed. But what happens in a co-habitation situation and the tax implications which might occur as a result?
Co-habitation and Property Ownership
The biggest area that concerns most co-habiting couples is property ownership. This tends to mainly come up when one partner has died and what happens in terms of taxation of the living partner. In Ireland, as of December 2012, the threshold for inheritance tax for individuals who are not spouses, civil partners, sons, daughters, parents, siblings, nieces / nephews or grandchildren is €15,075*. After that, inheritance in excess of this amount is subject to tax at 33%. This means the surviving co-habiting partner could have a large tax bill to pay.
Succession Rights and Tenancies
In a co-habitation circumstance, it is not always the case that the property will be passed onto the surviving co-habiting partner. Under the Succession Act in Ireland, there are no automatic rights for co-habiting partners to the assets of partners who have passed away. Much of this is determined on whether the co-habiting partners had a ‘joint tenancy’ or a ‘tenancy in common’ and those considering co-habitation should seek out legal advice in this regard.
Inheritance Tax Exemption ‘Family Home Relief’
Should the surviving co-habiting partner be entitled to the property and should the inheritance tax bill be in excess of the threshold, there may be conditions where exemptions may apply. For example, there is a relief that is commonly called the ‘family home relief’’ which is not exclusive to co-habitations but to anyone who satisfies certain conditions. It provides a complete exemption from inheritance tax on the basis that it was and will continue to be a ‘family home’.
The conditions include the following:
- The person who inherits the property must occupy the property as their primary residence for 6 years after the date of inheritance of the property.
- The person who inherits the property must have already occupied the property as their primary residence for at least 3 years prior to inheriting it.
- The person who inherits the property on the date of their inheritance does not hold an interest in another property.
When thinking about taking out a Mortgage Protection Policy, regardless of whether you are a co-habiting couple, married, in a civil partnership or otherwise, consult your insurance company for the best advice possible for your individual situation.
C & E Freeman Ltd trading as The Mortgage Shop, Easy Life Cover, TMS Financial Services is regulated by the Central Bank of Ireland.
Directors: Eamonn Freeman and Catherine Freeman. Company Registration No. 454380