At this time of the year, LOVE is all around us, men are rushing to the nearest garage to grab a bunch of flowers and pretend they never forgot Valentine’s Day. This is the time of the year when I also hear of lots of people getting engaged but what are the issues surrounding your marital status and having a child with special needs
Most parents I meet fall into the married category. As my wife might be reading this I have to say this is the best category!!
But it actually is, when it comes to building a larger Special Needs Trust. There are a number of reasons for this such as married couples pay less tax because they are able to share tax credits. In certain circumstances, they may also claim additional credits such as Home Carers Tax Credit on top of the Incapacity Child Tax Credit. This allows a parent to earn more money, pay less tax and put themselves into a better financial position.
Being married also has a huge advantage when it comes to Capital Acquisitions Tax (CAT) which is the main tax people pay to the government when they pass away. In 2020 if you inherit above your allowed threshold then you will have to pay CAT at 33%.
The following bands apply
- Married couple or civil partnerships = Unlimited – no CAT payable
- Parent to Child – €335,000 exempt then 33% over this threshold
- Family members – €32,500 exempt then 33% over this threshold
- Others – €16,250 exempt then 33% over this threshold
For this article, I have simplified the above information because what I was wanting to highlight is that when you are married (or civil partnership) then when you pass away your surviving spouse has no CAT liability. What this means is that all your assets transfer to them with no deduction or money passed on to the government.
If you are not married, divorced or living with your partner then you fall into the “Other” category. This is unfair but it is the current law.
In this scenario then any assets, money, life policies, house, etc. you inherit from your partner that is above €16,250, then you will have to pay 33% immediately over to the government in the form of CAT.
This is a major issue for all parents who fall outside of the “Married Couple” band. In particular, as you are focussed on passing as much of your possession on to your children and in particular into your child’s Special Needs Trust.
I recently met a couple that during our first meeting I explain this issue and by our second meeting 4-weeks later they had set a date to get married in a Register office after 12-years of living together! All jokes aside, they have no CAT issues going forward and can rest assured knowing that their family home, savings, pension and whatever else of value they have, can ultimately end up going to their children before the government can get their hand on any part.
If you fall into the “not married” category you might consider picking up a ring when you grab the flowers from the petrol station this year! You can read more on CAT https://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html.