Thursday, June 16, 2011

State to lose €100m in tax over civil partnership

The Exchequer will lose more than €100m as a result of tax changes brought about by civil partnership, which will also benefit couples who live together.

The new laws will give gay couples who sign up to civil partnership as well as cohabiting heterosexual couples similar tax treatment to married people.

A leading tax specialist has calculated that cohabiting couples could save more than €1,000 per household in income tax each year -- and that doesn't include new benefits from other tax changes affecting assets including property.

Latest figures show the number of cohabiting couples leapt from 31,300 in 1996 to 121,800 in 2006 and they now account for one in 12 family units

The Finance (No 3) Bill 2001 also allows registered civil partnerships to avail of the same tax benefits for areas such as stamp duty, capital acquisitions tax, capital gains tax and VAT.

It also allows for the taxation redress scheme to be applied for opposite-sex and same-sex cohabiting couples in the event of the break-up of their relationships.

The bill was published last Thursday by Finance Minister Michael Noonan and was provided for in the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 which was prepared by the last government.

Christine Kiely of taxback.com believes that by the end of the month cohabiting couples will begin seeing a change to their tax credit certificates where they will be entitled to married credits and the married standard rate band -- the amount of their salary taxed at 20 per cent.

Single-income households are likely to benefit most where the other partner may be unemployed and the employed individual can avail of unused credits and the standard rate band.

Ms Kiely told the Sunday Independent that more than 120,000 cohabiting couples in the country could knock €1,000 or more of their tax bill. 

She explained that under the current tax law a married couple who have one income pay 20 per cent on the first €41,800 they earn with the balance taxed at 41 per cent.

Up to now cohabiting couples have been treated as single persons for tax purposes so only the first €32,800 of their income is taxed at 20 per cent with the balance taxed at 41 per cent. 

Now cohabiting couples will be treated the same as married couples so they will save €1,890 in tax.

Couples with dual incomes also stand to make substantial tax savings.

"Up to now, cohabiting couples have not been in receipt of favourable tax treatment. However, the new legislation has essentially put those in registered civil partnerships on an equal footing with their married friends. The introduction of similar entitlements will be greatly welcomed. The bill has introduced tax legislation that is fair and mirrors entitlements of married couples allowing peace of mind and equality to registered civil partners," Ms Kiely said.

"If only half of the estimated number of cohabiting couples max out on the income tax savings, this could cost the Exchequer up to €100m. Capital gains tax and capital acquisitions tax savings would be in addition to this figure," she added.