How to pass on your home to an unmarried partner without triggering a massive tax bill

Q I own a property worth €600,000. My partner moved in with me ten years ago and has been living with me since. We have no plans to get married. How can I keep taxes to a minimum when willing a house to my partner — in case I die before her? John, Co Wicklow

 A Cohabitation in Ireland is growing in popularity for several reasons. However, many people don’t realise the differences in the tax and legal situation of cohabitants when compared to the position of married couples or those in a civil partnership.

You don’t mention having any children or if you were or still are legally married or in a civil partnership. In the event that you are still legally married or in a civil partnership — or that you have children, you may want to make provision for them through your will.

Other than civil partnership or marriage — where the full value of the house may be inherited by the civil partner or spouse free of Capital Acquisitions Tax (CAT), there are two possible ways that a home can be inherited tax-free.

The first is under the dwelling house exemption. With this exemption, your partner could inherit the house CAT-free if you die before her — as long as a number of conditions are met.

First, the house inherited must have been the main home and lived in by your partner for a minimum period of three years prior to your death. Second, she must continue to live there for six years from the date of inheritance. Third, she cannot have any interest or share in any other house.

The second option is the redress scheme for cohabiting couples.

This provides protection for a financially dependent partner where a long-term cohabitation relationship ends through separation or death. A property adjustment order under this scheme would need to be made against the deceased’s estate to ensure there is no CAT liability for the surviving partner.

I would strongly advise you to get legal advice when drawing up or amending your existing will to protect the interests of your partner and indeed any other family members you may wish to provide for.

How to limit the impact of a career break on your personal pension

Q I am self-employed and considering taking a career break for a couple of years.

I took out a standard Personal Retirement Savings Account (PRSA) a number of years ago and have been saving into it since. I won’t be in a position to save into this pension when I go on the career break.

I’m worried about the impact of charges on my PRSA fund while I go on my career break: will the annual management charge (currently 1pc) take more of a chunk out of my PRSA fund while contributions are not being paid?

Is there any way I can limit any potential negative impact which my career break could have on my PRSA?

Colin, Co Clare 

A The 1pc annual management charge (AMC) is the same irrespective of whether you are making contributions or not as it is applied on the policy value. The value of your pension increases when the underlying funds you are invested in go up more than the 1pc ongoing charge.

Make sure you are in funds in line with your investment time horizon — that is, the years left until you expect to retire. The longer you have to go to retirement, the higher the risk of the funds you need to be invested in — so that you obtain growth over the long run.

If your PRSA is in excess of €100,000, Standard Life has a PRSA contract with a 0.25pc AMC rebate which may be of interest to you.

This effectively reduces 40 of their funds to an AMC of between 0.65pc and 0.95pc once the value of your fund stays above €100,000. For any period of time it may dip below €100,000, the 0.25pc rebate will not apply. This could save you up to 0.35pc on your current 1pc AMC — which adds up over time.

Should you have your PRSA with another provider, it is possible to transfer your PRSA to Standard Life. Hire an independent financial adviser to facilitate such a transfer. 

Making up for loss of employer pension contributions

Q I was out of work for a year-and-a-half owing to Covid but thankfully have recently returned to work for the employer I was with pre-pandemic. I have been reliant on the PUP (Pandemic Unemployment Payment) for the year and a half I was out of work.

I do have a pension with my employer but I couldn’t afford to pay into it while I was out of work and my employer also ceased making employer contributions when the pandemic struck.

Before the pandemic hit, I was paying 5pc of my salary into my pension and my employer was also paying 5pc.

I hope to be able resume my own 5pc pension contributions shortly but my employer has said that it cannot afford to resume employer pension contributions for the foreseeable future — due to the impact of the pandemic.

Is my employer allowed to do this and what can I do to make up for the loss of the pension contributions (both personal and employer) over the last year and a half — and the possible loss of employer contributions altogether going forward? Also, are there any other company benefits which I should check I have not lost?

Joan, Co Kildare 

A Unfortunately your employer is not alone in either scaling back or stopping employer pension contributions altogether during the pandemic. Your employer may take time to get back on its feet financially before resuming contributions. Your employer’s priority is to stay in business.

As you were on the PUP payment, effectively you were no longer employed by that company. Your employer therefore was not obliged to make employer pension contributions on your behalf and as you were in receipt of the PUP payment, you were not able to receive income tax relief on those payments.

Whether your employer has the right to continue not making employer pension contributions will depend on the terms of the employment contract  — and the rules of the pension scheme.

Making personal pension contributions only makes sense when you are getting income tax relief at 20pc or 40pc —depending on your earnings. Now that you are back at work, maybe see if you can afford to invest more than 5pc of your earnings. Keep in mind that for every €100 you have invested in your pension, it will cost you €80 after 20pc tax relief or €60 after 40pc tax relief.

Your pension fund grows over time tax-free unlike other types of savings or investment products. With regards to other employment benefits you may have lost, check the terms of your current employment contract against your old one to see if it has death-in-service, income protection and private health insurance in place for you.

Keep the pressure on your employer around when it expects to resume employer pension premiums. In the event that you have not been given a new or revised contract, check to see if your previous contract still applies. If so, get them to confirm this in writing to you.