Singletons in Ireland pay high price for their marital status

As David McWilliams recently explained in this newspaper, one of the biggest demographic shifts in modern Ireland has been the rise of the singleton. Back in 1981, only about one in 10 women between the ages of 35 and 39 were single; fast forward to 2016, however, and this has rocketed to 35 per cent.

And when you extract those who may be living with someone but are unmarried, this still leaves you with about 30 per cent.

And that’s just women. About four in 10 men in this age group are also single. All told, that means about 150,000 people between the ages of 35 and 39 are single.

But while there might be more single people living in Ireland than ever before, tax and societal structures haven't adapted to this shift. As a result, being single can cost you in more ways than you might expect.

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Obviously, if you're living alone, your weekly grocery bill is going to be higher, you'll have to pay that dreaded single supplement in hotels, you won't be able to split your rent or mortgage unless you take in a flatmate, and those cable and gas bills will be all yours.

However, while living alone can be more expensive in many obvious ways, being single – and for the purposes of this article we mean unmarried with no children – can also cost you in ways you just might not have thought about.

Car insurance

Think about car insurance. Insurance companies can no longer offer prices based on your gender thanks to the European Union gender directive – but they still can based on your marital status.

Insurers appear to believe that if you are in a 'steady' relationship then you may be steadier as a driver and therefore a better risk

According to Deirdre McCarthy of insuremycars.ie, a 30-year-old looking for insurance on a Ford Focus with a five-year no-claims bonus and a full driving licence could expect to pay €400-€500 depending on the insurer. But adding on a common-law spouse would cut the premium by €25.

“Adding on a spouse can typically save between €20 and €80, so it’s worthwhile asking about it when getting a quote. If you go through a broker, they should already be familiar with this premium-cutting discount.

“Insurers appear to believe that if you are in a ‘steady’ relationship then you may be steadier as a driver and therefore a better risk,” says McCarthy.

So yes, insurance companies deem you to be more of a risk if you’re single.

For young drivers, McCarthy suggests you can get around this by adding on a parent or two, which can save up to €150.

“Again, insurers may feel that parents named on a policy are more likely to influence the driving habits of their children,” she says.

Tax regime

The tax regime also favours couples. Consider two people, male or female, one of whom is single, and the other married or in a civil partnership. The single person is earning a comfortable €100,000, and is paying an effective rate of tax (ie the rate they pay when tax credits/allowances, etc, are taken into account) of 38.8 per cent on their earnings. That means they give up €38,801 in income tax, universal social charge and PRSI every year.

What about their married counterpart? Together with their spouse, who also works, they earn €100,000 in combined income. But they pay tax of just 26.9 per cent on that income, meaning that they pay almost €12,000 less in tax every year.

When looked at on an annual basis, it may not seem that huge a differential, but over a lifetime it can add up. Over a working life of 40 years, the single person earning €100,000 will pay tax of about €1.6 million (all things being equal), compared with just about €1 million for the dual-income married couple – you could do a lot with that “missing” €600,000.

The difference between a married couple with one earner will be less, at about €200,000 over those 40 years.

The gap is even greater for those on a lower income. Take a person earning €50,000. On an effective rate of 27 per cent, that single person will pay some €538,000 in tax over 40 years. Their married friend, on the other hand, who together with their spouse earns a similar amount, will pay about half of that, about €253,000, thanks to an effective tax rate of just 12.7 per cent.

The main reason for such a large difference is that dual-income couples pay a higher proportion of tax at the lower 20 per cent rate. They also benefit from lower USC thresholds. This means that, from the perspective of the tax regime at least, it’s better to be married than single – and with both spouses working.

Getting a mortgage

More and more people than ever before are buying a house on their own. Figures from the Central Bank for 2017 show that about 56 per cent of first-time buyers were single borrowers, which suggests that single buyers are more than able to buy a house on their own.

Moreover, many are getting exemptions which allow them to borrow more than 3½ times their income. The Central Bank finds that 69 per cent of borrowers getting an allowance on the loan-to-income rules were single buyers – 31 per cent of borrowers were couples – in the first half of 2017, a giant leap on the previous year.

However, these single people availing of exemptions are likely to have higher income profiles than their counterpart couples; mortgage brokers typically suggest that a single applicant will need to have income of at least €50,000 to apply for an exemption. Joint applicants, however, will only need about €35,000 each.

Another issue is mortgage protection; banks typically want you to have life insurance in place before they will give you a mortgage. While some exceptions to the rule are allowed, for example where you get can’t life cover due to health reasons, most banks will look for it.

This is because should you die, the mortgage will be paid off directly and the bank won’t have to do anything to recover its money.

However, if you’re a single buyer – and as we’ve seen most first-time buyers now are – protecting your dependants isn’t an issue, so the reasons for having life cover in place may be negligible. But you will still be required to pay out a couple of hundred euro every year for mortgage protection to satisfy the bank.

Inheritance

And it’s not just income tax where single people are disadvantaged. The inheritance laws are also against you. If you’re married, you can transfer all your assets to your spouse tax-free. But if you’re single with no children, anyone who inherits your estate will likely pay some element of tax on it.

Or conversely, if you inherit assets from a non-family member, you may have to pay tax on it depending on how large the inheritance is; unlike someone with a spouse, you will never be in line for a big tax-free payout.

This issue was raised in the Dáil recently, but Minister for Finance Paschal Donohoe intimated that he would not be moved on levelling the playing field for single people.

Instead, he said that single people could transfer assets free from tax provided that they did so within the relevant thresholds; but given that these are very low, at €32,500 for a brother/sister/niece or nephew, or €16,250 otherwise, doing so can be difficult.

Ironically, the threshold for passing wealth to children by parents is rising annually

Moreover, he suggested that single people can also avail of the dwelling-house exemption to bequeath their home tax free. But again, this is very restrictive.

The reluctance to increase these thresholds, which would allow single people without children to pass on a greater proportion of their wealth – or indeed to inherit it – without a burdensome tax bill, is likely down to how much revenue they generate for the exchequer. Ironically, the threshold for passing wealth to children by parents is rising annually and the Government is on record with its intention to bring this threshold up to €500,000.

Indeed, while the Government increased the group A threshold, for parents or children, in both the 2016 and 2017 budgets, there have been no such increases for any other groups.

As noted in the recent Tax Strategy Group papers, increasing the group B and C thresholds to bring them into line with the group A threshold (currently €310,000), would be “very expensive”, costing about €198 million.

“This is because a significant element of the yield from gifts and inheritances arise from the group B threshold,” the group said. In 2017, some €234 million, or 51 per cent of total tax revenues, came from group B cases.

Pensions

Yes, if someone is going to inherit your pension it means you’ll be dead, so you may not care what happens to it. On the other hand, knowing that when you die, whoever you choose to inherit your pension stands to lose as much as 70 per cent of it may be galling – particularly when you consider the sacrifices you’ve likely made along the way to save for it.

The tax treatment of approved retirement funds (ARF), the pension vehicle of choice for people on defined-contribution pensions, is particularly onerous for people who are not married.

This is because, 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 capital acquisitions tax for the recipient. This means that the tax rate can then be as high as 67 per cent.