Will large savings cost my OAP uncle?

QMY uncle is an 86-year-old single man who is in receipt of a full rate State noncontributory pension. He is a small farmer with savings of about €85,000 in a bank deposit account. It is only in the past year that I became aware of the amount of his savings and since then I have advised him a few times that as his savings are so high, he should not be drawing the full rate of pension. He counters that by saying that he qualified for the full rate when he was first assessed for the pension about 20 years ago. I accept that but since then he has received profits from his farm as well as Department of Agriculture grants — all of which he has deposited in the bank. He has run his house and farm from the proceeds of his pension. My question is: if my uncle were to be spot-checked by a pension officer or indeed pass away with the situation as it is, would he or his estate have much to repay to the Department of Social Protection? Also, do you have any advice on how he should remedy the situation. Anne, Co Galway AS an 86-year-old in receipt of the full rate State non-contributory pension, your uncle should be receiving €237 per week.

The means-tested non-contributory State pension is a payment for people aged over 66 who do not qualify for a contributory State pension or who only qualify for a reduced contributory State pension based on their social insurance record.

Savings of €85,000 would be means tested and would impact your uncle’s receipt of the State non-contributory pension. I would calculate that his savings of €85,000 would almost completely wipe out his entitlement to the non-contributory pension — with a deduction of €210 off the €237 which he is currently receiving.

The point he makes about qualifying 20 years ago on first assessment isn’t relevant. The guidelines from the Department of Employment Affairs and Social Protection clearly state that you are legally obliged to notify the department within three months of any increase in your means.

You must always tell the department if there are any changes to your circumstances while you are getting a non-contributory State Pension. If your means or circumstances change, you may no longer qualify for the payment or it may be reduced. This could mean that you have to repay an overpayment. In the event of your uncle’s will going to probate and savings such as this existing, the Department of Employment Affairs and Social Protection can claim compensation from the proceeds of the estate.

The best way of remedying the situation is to follow the guidelines from the department about notifying it of his change in means. The likelihood is that his pension will be significantly reduced but at least the danger of penalties in future will have been removed.

Unmarried tax worries

QMY partner and I have never been big believers in marriage. So, while we have been together almost 30 years now and have three children, we have never got married. I’m concerned however about the tax bills which I might face in the future should my partner pass away before me. My partner has a lot of savings in the bank. He also owns the family home (worth €700,000) which we have lived in for the last 30 years.

I am worried that as we are not married, that home might not pass tax-free to me should my partner die before me and that I may have to sell the home to settle inheritance tax bills as a result. He refuses to entertain the idea of marrying for tax reasons. Is there anything else (apart from marrying) which we can do to reduce the tax bills that I would face were my partner to pass away before me? I have been a stay-at-home mum for the last 15 years, so I don’t have much savings and I don’t own any property either. Mary, Co Wicklow IN recent times, the trend towards couples cohabiting rather than marrying has become increasingly common in Ireland. As you have referenced, cohabiting couples do not have the same rights as married couples or same sex civil partners.

Your partner can pass on assets of up to €310,000 to each of your three children without raising a Capital Acquisition Tax (CAT) liability.

Any assets over a valuation of €16,250 transferred to you though are liable for CAT.

The solution for you here, outside of marriage, is to take out a ‘life of another’ life insurance policy on your partner. You have an insurable interest on your partner due to co-habiting with him and having three children together. The policy would be owned and paid for by the surviving partner and because of this, it will fall outside the estate on death — ensuring that the surviving partner receives the proceeds of the policy.

You also state that you are a stay-at-home mum with little savings. Your partner can gift you up to €3,000 per annum tax-free to you — and this could be used to pay towards the cost of the ‘life of another’ policy.

Funds from the proceeds of the policy can be used to clear any CAT liability on death. Ideally when setting up the policy, you should look for professional advice on the likely CAT that would be due on death and review this annually, or every second year, with a financial planner.

In relation to the transfer of the family home, you state that you have lived in the home for 30 years. Therefore, on the assumption that you have no other property interests, you would qualify for the dwelling house exemption on the inheritance of the family home and so no inheritance tax would be payable on the home.

A requirement of the dwelling house exemption is that you remain living in the home for at least six years after the inheritance date to avoid a clawback of CAT owed.

Overriding this information is the strong advice to have an up-to-date will in place to ensure the efficient transfer of assets.

Childless inheritance

QMY husband and I couldn’t have any children. We are now in our mid-60s. Our main assets are our home and about €200,000 in savings. We are wondering what’s the most tax-efficient way to plan the inheritance which we leave behind us. Apart from friends, we don’t have anyone to leave our inheritance to as we both came from small families who have all since passed away. Would you have any advice here on how we can best plan our inheritance so that anything we pass on doesn’t trigger a major tax bill for the donee? Kate, Tralee, Co Kerry TO begin with you should draw up a will, so you can dictate who gets the benefit of your estate when you die. You can try to use the tax-free thresholds for inheritance tax as efficiently as possible. If you have any nieces or nephews, up to €32,500 can be left to them before any inheritance tax liability at 33pc arises. You reference leaving part of your estate to friends: up to €16,250 can be left to each of your friends before any inheritance tax liability arises.

In addition, any donations to a registered charity would be exempt from inheritance tax.

There will be a tax bill on the transfer of the house though. Currently the average house price in Ireland is €241,000. Passing on the house to anyone that you have referenced would mean the recipient/beneficiary would have a significant inheritance tax liability. The best advice around the transfer of the house would be to speak with a solicitor to structure the will in the most efficient manner for this event.