Case study: Spouses need to weigh up tax efficiency gains against potential pension losses

JOE Farmer is 55 and his wife Mary is 49. Mary works full time in the home and also helps out on the farm.

They are considering placing the farm in joint names and creating a partnership between them as they have been advised that it would be more tax efficient.

The partnership would ensure that Mary would qualify for a State Contributory Pension in her own right when she reaches pension age which for the purpose of this example will be on her 68th birthday under existing legislation.

Mary has no means of any consequence and would otherwise be entitled to a Qualified Adult Allowance when Joe reaches pension age which we will also assume to be his 68th birthday.

If we assume that Joe will live until he is 84 and that Mary will survive him, we will compare how they would fare in the following scenarios;

(1) The farm remains in Joe’s name and Mary receives the Qualified Adult Allowance when Joe reaches pension age, or

(2) The farm is placed in joint names and Mary qualifies for the full pension when she reaches pension age.

In the first scenario, Joe will receive a total of 16 years pension and Mary will receive a total of 16 years Qualified Adult Allowance amounting to a combined total of €381,080 at current rates.

In the second scenario, Joe will again receive 16 years pension while Mary will receive only 10 years pension amounting to a combined total of €342,157 at current rates.

This means they would have been better off to the tune of €38,923 by opting to leave the farm in Joe’s sole name and not transferring the farm into joint ownership.