Subscriber OnlyYour Money

Unmarried couple? You could lose 70% of your pension

Unmarried partners face punitive tax rates on pensions and the family home

Here is one certainty in life: if you get married, you won’t pay more tax.

"Any couples thinking of getting hitched can rest assured – bar the cost of the wedding – it's not going to hit you financially, as marriage has a protected status in the Irish Constitution," says Barry Flanagan, director at This means that any "barriers", such as increased income tax, would be unconstitutional.

For John Heffernan, tax partner with EY, it's more about the disadvantages of not being married than it is about the advantages of being married.

"The disadvantages are very clear, particularly in the pensions area," he says.


Is marriage beneficial?

Whether or not you’ll get to keep more of your pay cheque each month really comes down to your own specific circumstances. For some people, getting married will leave them with more in their pocket each month. For others however, there won’t be any gains.

So who stands to gain?

There are several scenarios where marriage can prove financially advantageous. Firstly, when only one spouse is employed, savings can be made.

According to Flanagan, if one spouse earns €50,000 per year they will pay €9,940 in tax. However, when they get married, the tax owed will fall to just €6,490, so this couple will be better off to the tune of €3,450.

This is because the standard-rate band, where you pay tax at a rate of 20 per cent, is €34,450 this year for single people. However, married couples with one earner can earn up to €43,550 before moving into the higher tax bracket. That gives rise to the savings in the above example.

Moreover, if a couple have children and aren't married, they might be missing out on the home carer tax credit. This credit has increased in recent years and is currently worth €1,200. If you qualify, this sum is cut from your tax bill straight away. It is given to jointly assessed married couples, where one spouse looks after a child or children in the home.

And the stay-at-home spouse can still earn to benefit from it. Earnings of up to €7,200 a year benefit from the full relief, while a reduced credit applies if the carer’s income is between €7,200 and €9,600.

Couples where both spouses work can also benefit from marriage. Consider the example of a couple where one has an annual income of €43,550, and the other has an income of €25,550. Unmarried, the couple will pay €9,170 in tax; but if they get married their tax liability will drop to €7,520 – savings of some €1,650 a year.

But this very much depends on earnings. Typically, one of the spouses will have to be on the standard rate of tax (ie earning less than €34,550 a year) to benefit. This is because married couples can now earn more – up to €69,100 – at the standard rate of tax, which allows the higher-earning spouse to pay tax at only 20 per cent in the above example.

Who doesn’t marriage benefit?

Depending on how much you earn, marriage may have no material benefit, at least from a tax perspective. When both spouses are working, there will be no savings once their combined earnings pass €69,100.

“If each spouse is working and earning €34,550 or more, each is already taking full advantage of the standard-rate tax band and no tax saving is available,” Flanagan says.

If being landed with a hefty tax bill in order to keep your family home isn't enough, the surviving partner may also face an even bigger tax bill on their late partner's pension

And there’s another cohort – this time of lower earners – who also won’t benefit. “When you both work and both earn less than €34,550 each, you won’t be any better off when it comes to tax,” says Flanagan. This is because neither spouse is paying the higher rate of tax, so there is no incentive to share any unused standard rate tax band.

But you still won’t be any worse off financially.

What about the year of marriage?

A question many people face amid the agonising over seating plans, favours and invitations is whether they should apply to be jointly assessed when they get married.

If you don’t notify the Revenue you will both continue to be taxed as single people and, as we have seen, this will cost some people but not others.

If getting married benefits your bank balance, you should notify Revenue to be jointly assessed. And what’s nice to know – particuarly at such a costly – is that if you notify Revenue, and there is a differential in the tax owed before and after the wedding date, you can claim the difference as a tax refund.

“Surprisingly, not everyone notifies the Revenue of this change in personal circumstance and I can only guess that it’s because they are not aware that it could result in money in their pocket,” Flanagan says.

Asset transfers

Spouses also stand to benefit when it comes to transfers of investments and assets. If you give a gift of an asset to your partner, they will be liable to capital gains tax (CGT) at a rate of 33 per cent.

"However, this does not apply to transfers between spouses," says Flanagan. And not only that, but investment losses can be shared between spouses. This means that if one spouse makes a loss on an investment, they can use this loss to offset against CGT charged on an investment from the other spouse.

And should one of the spouses die, all of their assets can be transferred – tax-free – to the other spouse. If the couple is unmarried however, death can give rise to substantial capital acquisition tax (CAT) bills. After all, unmarried partners are deemed "strangers" in inheritance tax law, and therefore can benefit from a tax-free threshold of only €16,250.

And, as Heffernan notes, it doesn’t matter if the couple have been together a long time: common-law arrangements are still not subject to the thresholds married people enjoy. This means that if the family home is left to an unmarried partner, they will face capital acquisition tax (CAT) at 33 per cent on it or face being forced to sell. For instance, on a property valued at €500,000, they would have to come up with €160,000 just to stay in it.

What about pensions?

If being landed with a hefty tax bill in order to keep your family home isn’t enough, the surviving partner may also face an even bigger tax bill on their late partner’s pension.

Increasingly, retirees are opting to put their pension savings into approved retirement funds (ARFs), which allow them to pass on the assets when they die. But if they pass it on to an unmarried partner, the tax rate can be as high as 67 per cent. According to Heffernan, when an ARF passes to anyone other than a spouse or the children of the ARF holder, it is treated as if the ARF holder drew down the balance of the ARF in the year of death, with income tax on that drawdown. And the balance is then subject to CAT for the recipient.

Consider the example of an ARF valued at €1 million. If the partner who inherits the ARF is younger than 66 (no PRSI applies over 66) and has already used up their standard-rate allowance, tax at the full rate of 52 per cent will apply. Straight away, this reduces the value of the fund to €480,000. And the Revenue still hasn’t finished.

Inheritance tax now applies to this balance. Deducting €16,250 for the group C threshold leaves a taxable benefit of €463,750 and a CAT bill of €153,038. So the net benefit for the partner is just €326,962 – almost €700,000 wiped away just like that.

One way to avoid this is to leave the pension to the couple’s children, where there are children, as children under the age of 21 are exempt from income tax and normal CAT applies to the threshold.

So for a single individual or someone with a non-married partner the annuity/pension would die with the individual

Over 21, children won’t pay CAT and income tax at a flat rate of 30 per cent applies, so the loss to the taxman is significantly less, at €300,000.

Of course, the surviving partner will have to be sure that the children pass the money on to him or her and not spend it on themselves.

According to Heffernan, the only concession for a so-called common-law spouse is a special hardship provision, which allows Revenue to postpone collection of inheritance tax where the tax causes hardship. But, crucially, it does not reduce the tax owed.

When it comes to annuities offered as part of defined-benefit schemes, the tax treatment is different, and payments received are subject only to ordinary income tax. However, defined-benefit pension schemes will typically only include a survivor’s pension for a spouse.

“So for a single individual or someone with a non-married partner the annuity/pension would die with the individual,” Heffernan says.

Will marriage save me money?

It might if:

– Both spouses are working but only one pays tax at the higher rate

– Both spouses are working and one spouse has unused credits due to low income

– Only one spouse is working

– One spouse cares for children in the home

– The spouses are disposing of assets or making investments

– One or both spouses have pension savings in an ARF