Single people are ‘the poor relatives’ when it comes to inheritance tax

“I don’t want to think that somebody who is married with children is more than I am,” says Brigid Timmons.

“I’m worth what they’re worth, and my beneficiaries are as worthy as their beneficiaries. But any beneficiary of mine is regarded by the law as a stranger who can only get €16,250 before tax and, unless there is change, there is nothing I can do about it except spend with great fury.”

Timmons, who is single, is “incensed” about Ireland’s differential inheritance tax treatment of those who are married or in civil partnership (CP), especially those with children, compared to single people and unmarried cohabitants.

“There’s an assumption a single person must give their wealth to their siblings,” she says. “They do not have to but there’s an expectation, ‘what else would they do?’ The right to be single and childless, that is a right, the way it is a right to be married and have children.”

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‘It’s like if you picked out one section of the community and said, you’re going to be better off than this lot. That’s what has happened. My issue is not about paying tax, it’s about being treated fairly.’

—  Brigid Timmons

She is at a loss to understand why the differential regime is tolerated. “It’s like if you picked out one section of the community and said, ‘you’re going to be better off than this lot.’ That’s what has happened. My issue is not about paying tax, it’s about being treated fairly.”

The differential treatment of those in relationships legally formalised via marriage/CP has come into sharp focus following last month’s landmark Supreme Court decision that the exclusion of a bereaved unmarried father of three, John O’Meara, from the widower’s pension breached his right to equality under Article 40.1 of the Constitution.

There is also speculation that the March 8th referendum seeking to expand the meaning of “family” under Article 41.2 to include those in “durable relationships” could, if passed, lead to additional entitlements for unmarried cohabitants under the tax and social welfare regimes.

Under the Capital Acquisitions Tax Consolidation Act 2003, a beneficiary is mainly accountable for payment of inheritance/gift tax at 33 per cent beyond set thresholds. The donor, or their estate, may also be liable for payment if a beneficiary cannot pay the tax.

A Group A threshold of €335,000 applies when the beneficiary is a child, including a stepchild or adopted child, of either the donor, their spouse or civil partner. In some cases, a donor’s parents may fall under the Group A threshold.

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A Group B threshold of €32,500 applies to beneficiaries who are siblings, nieces, nephews, grandparents, grandchildren, lineal ancestors/lineal descendants of the donor or a parent of the donor who does not fall under Group A.

A Group C threshold of €16,250 applies where the relationship between the beneficiary and donor does not fall within either Group A or B.

The law effectively means those with children can make gifts and inheritances on far more advantageous tax terms than those without children.

The very significant exemption from a substantial financial burden extended to relationships legally formalised through marriage/CP does not apply to cohabitants who have not so contracted.

While an unmarried cohabitant can leave a shared property to their partner up to a value of €335,000 before CAT, other assets or funds to that value will be taxed at 33 per cent.

A legal curiosity is that if an unmarried cohabitant in a relationship for at least five years (two years if children are involved) goes to court seeking financial provision from their deceased partner’s estate, any court-ordered provision is totally exempt from CAT.

The differential treatment potentially affects tens of thousands of people. An estimated 170,000 people are cohabiting and the 2016 census showed about one in five people aged over 40 in most counties, rising to more than 30 per cent in cities, are single.

A retired professional living in south Dublin, Timmons believes the relative silence from single people about inheritance tax can be attributed to factors including a general reluctance to discuss dying and inheritance and strong advocacy of the interests of married people/families while single people have no lobby group.

“I get it completely, the whole sensitivity of it. People don’t want others to know they are coming into an inheritance or money, I think it’s very much as basic as that. If you inherit and then if you have to sell, it’s like a sort of failure, and it’s all mixed up with grief and loss and your own mortality. It’s just a little bit too much at a very critical time.”

‘No children or partners were involved, it was straightforward enough but the tax implications of it all hit me like a ton of bricks, the penalties, timing, deadlines. It was just a big eye-opener’

—  Brigid Timmons

She has direct experience of what differential inheritance tax treatment means. Nine months after the death of her father, who divided his estate between his two children, her brother died and his estate came to her but she could inherit just €32,500 before 33 per cent CAT.

“No children or partners were involved, it was straightforward enough but the tax implications of it all hit me like a ton of bricks, the penalties, timing, deadlines. It was just a big eye-opener.”

She personally extracted grants of probate for her father’s and brother’s estate and, on the same day, paid a sobering visit to Revenue to pay the inheritance tax bill.

“Any cash I inherited was wiped out because there was property involved. I wanted to keep the property as an income stream, not to supplement any portfolio. It cleaned me out completely, my own savings, and money that I inherited. If I didn’t pay it, there would be penalties, so I paid it and staggered away.”

After that experience, she learned of others in similar situations. “I began to hear awful stories where people were left a small house or a house in the country, anything, but could not keep it because they could not pay the tax, they had no savings, and had to sell it.”

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Her involvement in her one-woman company, Good Grief Ltd, taking care of practical issues in the aftermath of a death, exposed her to many accounts of unequal treatment of the single and childless. Some residents of nursing homes, she was told, arrange late marriages to avoid heavy tax payments.

“I began to think, purely on the grounds of equality, it’s not fair and I began to go down that road of equality and the European definition of equal rights. I said okay, I’m taking it seriously, it’s important.”

She focused on the unequal tax treatment in communications to politicians and organisations and was encouraged by a very positive response from Dublin Central Independent TD Maureen O’Sullivan, since retired, who secured a comprehensive legal opinion in 2019 on the issue.

The opinion considered, among other things, that a case could be advanced on grounds the differential treatment breaches equality and/or property rights but cautioned that the courts have held that taxation provisions imposing unequal treatment may be justified on foot of an objective, or policy decision, grounding that treatment.

The essence of ministerial replies to Dáil questions about the issue has been to the effect that the differential tax treatment is in line with the law, Timmons says.

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“That prompted me to think the law is discriminatory, the law must be changed.”

Having discussed the issues with lawyers, she believes the way to make a difference is for an affected person to take a legal case. “I’ve been told the case needs to be made by the person who has all this tax to pay but I wonder too, why shouldn’t I take a case? If I’m leaving money or property to a particular person, I want them to have it without all that tax.”

The Article 41 referendum, she believes, may offer potential for change. “I think it will open up a can of worms legally, I hope it does. Perhaps ‘durable’ relationships could cover some of the situations I’m talking about.”

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Married people see the world though a particular prism, Timmons says. “The marrieds with children are all protected, their futures, their legacies are protected, that’s a huge reassurance.”

Her challenge, she stresses, is not to the institution of marriage but about unfair and unequal tax treatment. Single people who made the same pension contributions as married colleagues are treated differently when it comes to tax treatment of their pension after death, she adds.

“When it comes to inheritance tax, I think it would be reasonable for a single person to be able to nominate one person or two people to have the same benefit that children get. Then it’s getting fairer. It’s like single people are the poor relative really. The single person has the right to give their wealth to whomever they choose without being penalised. The person who gets it is also penalised and should not be.”

Joe Coleman, a business consultant and director of LetsMediate.ie who has been cohabiting with his partner and two children for 10 years, has lobbied several TDs seeking inheritance tax rules that are “fair, consistent and available to all families”.

The reality is the number of people opting to be a family outside marriage and outside CP is increasing, he says. “It is clear the Revenue Commissioners and the State always intended for a zero inheritance tax rate to be available to a surviving spouse. The precedent is there.”

Amending Article 41 to provide for a wider concept of family ‘reflects the values we hold dear in a modern, inclusive Ireland whilst rightly recognising single parents and cohabiting couples as fundamental to our society’, Joe Coleman believes.

Partners, particularly those who are parents, should not have to worry that, in addition to dealing with the loss of a loved one, inheritance tax may make it more challenging for a surviving partner to support and raise the children, says Coleman. While children will fall under the category A threshold, matters “can become very complicated and financially precarious” due to the inheritance tax treatment of couples outside marriage and CP.

A surviving partner from such family units will essentially be viewed by the State as a stranger to the deceased, from an inheritance tax perspective, with any transfer of assets above €16,250 liable to inheritance tax, he notes. The surviving partner may qualify for the dwelling house exemption or redress scheme but, if not, tax will need to be paid even if that means disposing of some assets, he adds.

Amending Article 41 to provide for a wider concept of family “reflects the values we hold dear in a modern, inclusive Ireland whilst rightly recognising single parents and cohabiting couples as fundamental to our society”, Coleman believes.

The intention behind the amendment is that children in non-married families cannot be disadvantaged on the basis of their parents’ marital status and surely the “logical and natural” extension of that is to ensure such children should not be financially disadvantaged should one of their parents die, he says.

The Government should be commended for the proposed progressive changes to Article 41 but should follow through with changes to inheritance tax threshold rules “consistent with these beliefs”, he adds.

Solicitor Elaine Byrne, a specialist in probate and succession law, says differential inheritance tax treatment for single people, unmarried cohabitants and people without children is “definitely an issue” for clients. “A lot would say it is so unfair. The 21st century reality is that many people are not married but tax law has not caught up with that.”

Single people or unmarried couples without children try to get around it by leaving small sums to a lot of people but the problem is when they want to leave it to one beneficiary, she says.

If there is no cash in the estate, beneficiaries liable for 33 per pent CAT can seek agreement from Revenue to pay via instalments, she notes. Revenue has power to apply a hardship provision seeking to reduce the CAT “but I have never seen it”.

The 2010 Cohabitees Act refers to a relationship of five years but there have hardly been any cases decided under that Act, Byrne notes. Social policy changes over the decades suggest a change in tax treatment of single people and unmarried cohabitants is “inevitable” but any change needs to be “well defined” so that those affected know what it means for them.

While the proposed amendment of Article 41.2 refers to families based on “durable” relationships without clarifying what “durable” means, there could be legislation to address that, she says. The O’Meara judgment “could be a game changer”.

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