27th July, 2022
For those people who live together without obtaining legal recognition ( e.g. entering civil partnership or marriage) can create future financial headaches! This week the Irish Law Society highlighted some in their Budget submission for 2022 :-
TAXATION OF SURVIVING QUALIFYING COHABITANT
Item 27 of the Third Schedule to the Finance (No. 3) Act, 2011 inserted Section 88A
CATCA 2003. Section 88A provides that any gift or inheritance received by a qualified
cohabitant under a Court Order under s. 175 of the Civil Partnership and Certain Rights
and Obligations of Cohabitants Act, 2010 shall pass free from CAT. There is no other
provision in the Finance (No. 3) Act, 2011 for any tax relief for cohabitants.
Where a cohabitant feels it just that he or she should make financial provision for a
financially dependent cohabitant and does so either by will or deed, such provision is
taxable on the basis of a gift / inheritance from a stranger. The exact same provision, if
ordered by a Court, would pass free from tax This anomaly can only have the effect of
encouraging financially secure cohabitants to deliberately fail to make such provision in
the knowledge that any order of the Court, which may well not be challenged by their
estate, would pass free from tax to their financially dependent cohabitant.
Law Society Recommendation
That any provision made by a person by will or by deed, for the benefit of a qualified
cohabitant, should have the benefit of a Group A Threshold, save where an order of the
Court under s. 175 of the Civil Partnership and Certain Rights and Obligations of
Cohabitants Act, 2010 applies, in which case such provision ordered by the Court
should continue to be free from tax.
DWELLINGHOUSE EXEMPTION AND QUALIFYING COHABITANTS
Dwellinghouse Exemption was originally introduced by s.151 of Finance Act, 2000,
replacing Close Relative Relief, which in its turn replaced Sibling Relief. S.151 inserted
s.59C to the CAT Act, 1976, which in turn became s. 86 CATCA 2003.
All these reliefs and exemptions were in relation to a dwelling where the disponer and the
beneficiary all lived in the dwelling and the beneficiary did not have an interest in any
other dwelling. The whole or a share in the dwelling could be gifted (“inter vivos”) or
devised or bequeathed (“by will”) to the beneficiary free from CAT provided certain
conditions were met. The significant change introduced in 2000 was that the pre-existing
relationship requirement was removed.
For cohabitants, this meant that the member of a cohabiting couple, either same sex or
opposite sex, who owned the dwelling the couple lived in could provide, either inter vivos
or by will for the surviving cohabitant. The need of the surviving cohabitant for housing
security could be met by the owning cohabitant either transferring the property into joint
names or making provision by will, without incurring a liability to CAT. This was prior to
any legislative provision for same sex couples and for opposite sex cohabiting couples.
In 2007, because of a perceived abuse of the exemption, the section was repealed and
replaced in its entirety by s.116 Finance Act, 2007. S.116 provided that for inter vivos
transfers, the relief would not be available where the disponer and the beneficiary resided
in the dwelling at the same time.
Cohabitants however, could not transfer the property or a share in the property inter vivos.
This of course, was prior to the Civil Partnership and Certain Rights and Obligations of
Cohabitants Act, 2010 (“the Civil Partnership Act, 2010”) and Finance (No. 3) Act of 2011
which regularised the legal and tax position for same sex couples who could now enter
into Civil Partnership and acquire the tax status of a married couple, including an
exemption from CAT. Since then, we have had the Same Sex Marriage Referendum and
the Marriage Act, 2015 which effectively replaces Civil Partnership with Same Sex
Marriage. Existing Civil Partners can marry each other relatively easily and since
February 2016 no new Civil Partnerships may be registered.
For cohabiting couples however, while the Civil Partnership Act, 2010 and the Finance
(No. 3) Act of 2011 did introduce the concept of the “qualified cohabitant” and provide
some measure of protection and tax relief for a qualified cohabitant (as defined), a
corresponding recognition of the status of a qualified cohabitant has not been provided
for CAT generally. In particular, it did not provide a similar exemption from CAT in relation
to a shared dwelling. As noted, cohabiting couples, who satisfy the requirements of the
Civil Partnership Act, 2010 to be considered qualified cohabitants cannot transfer the
property inter vivos from the sole name of one cohabitant into the joint names of both
without incurring a very significant liability to CAT.
Tax free transfers of the shared (but not co-owned) home can be only effected on death.
Section 52 of the Finance Act 2016 restructured the exemption significantly, confining it
for the most part to inheritances where the beneficiary has been residing in the property.
However no degree of recognition of the plight of qualified cohabitants can be discerned
from the proposed legislation.
The Society’s practitioners regularly see in practical difficulties caused by this omission.
The Society calls upon the Department to consider the needs of qualified cohabitants
when reviewing Dwelling Exemption.