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Tax Changes for Co-habitants and Civil Partners

July 1, 2011

Legislation which came into effect on 1 January 2011 allows same-sex couples to enter into a legally recognised relationship of civil partnership, with rights similar to those for married persons. The same legislation also provides a redress for cohabiting couples (both same-sex and opposite-sex) who are living together as a couple in an intimate relationship for five years (or two years if there is a child of the relationship).

Recently published draft tax legislation contains the associated changes to the tax law and if enacted, will be effective retrospectively from 1 January 2011. Although substantial measures are included for civil partners, there are minimal changes for co-habitants and only in the context of termination of the relationship. The changes introduced include the following:

  • Civil Partners can avail of the same tax treatment as married couples. This includes the right to be jointly assessed for income tax purposes and an exemption from capital gains tax, capital acquisitions tax and stamp duty for property transfers between civil partners
  • The tax free thresholds for gifts and inheritances to the children of a civil partner will mirror those available to a person’s biological child or step child
  • In most circumstances, cohabitants will continue to be treated as “strangers” under tax law. For example, if a person dies leaving property to a cohabitant, the cohabitant will only be entitled to a tax free threshold of €16,604 in 2011. A married person or civil partner would receive the property tax-free
  • However, some tax reliefs will apply to qualified cohabitants where maintenance payments or property transfers are ordered by the courts on the termination of the relationship. The party paying the maintenance is entitled to a deduction for the payments while the recipient will be taxed on the amount received. This mirrors the treatment of maintenance payments between spouses and now also civil partners. Court ordered transfers of property made on the termination of the cohabitation can be exempt from capital gains tax, capital acquisitions tax and stamp duty

Contributed by Niamh Keogh.

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