Unmarried Couples and Mortgage Protection: The 33% Inheritance Tax Trap in Ireland (2026 Guide)

Unmarried Couples and Mortgage Protection: The 33% Inheritance Tax Trap in Ireland (2026 Guide)

When Sarah's partner Mark died suddenly at 35, she was devastated. They'd bought their dream home in Dublin two years earlier - unmarried but deeply committed, with a €300,000 mortgage on their €400,000 home.

The joint life mortgage protection policy did exactly what it was supposed to: it paid off the €280,000 remaining mortgage balance. The house was now hers, mortgage-free.

Then came the letter from Revenue.

Because Sarah and Mark weren't married, Revenue treated Sarah as inheriting Mark's 50% share of the gross property value - €200,000 (50% of €400,000).

After the €20,000 tax-free threshold, she owed 33% Capital Acquisitions Tax on €180,000.

The bill: €59,400.

Sarah had to remortgage the house she'd just inherited debt-free to pay the tax bill. The policy meant to protect her had created a financial nightmare.

This happens to unmarried couples across Ireland every year. And it's completely avoidable if you know how to structure your mortgage protection correctly.

The Inheritance Tax Problem for Unmarried Couples

Ireland's Capital Acquisitions Tax (CAT) treats married and unmarried couples very differently.

Married couples or civil partners: Unlimited tax-free threshold. Your spouse can inherit everything without paying a cent in CAT.

Unmarried couples: Only €20,000 tax-free threshold (Group C relationship). Everything above that is taxed at 33%.

Here's the critical issue: When one partner dies and a joint life mortgage protection policy pays off the mortgage, Revenue doesn't just look at the insurance payout. They look at what the surviving partner has actually inherited.

The survivor now owns 100% of the property. Revenue calculates CAT on inheriting that 50% share of the gross property value - regardless of whether there was a mortgage or not.

The bigger your property value, the bigger the tax bill. Cohabitation agreements don't change your CAT status - only marriage or civil partnership does.

Why Joint Life Policies Can Create Tax Headaches

Joint life mortgage protection is the default option banks and brokers recommend. It covers two people, pays out when the first person dies, and clears the mortgage.

For married couples, this works fine. For unmarried couples, it can be a real problem.

What actually happens with a joint life policy:

When the first partner dies, the joint policy pays the full mortgage balance to the lender. The house is now mortgage-free and belongs entirely to the surviving partner.

Revenue sees the surviving partner has inherited their deceased partner's 50% share of the property.

Real example: Cork couple with €250,000 mortgage on €350,000 home

Joint policy pays out €250,000 to clear the mortgage. The house is now worth €350,000 with no mortgage.

From Revenue's perspective, the surviving partner has inherited 50% of the gross property:

• Inherited share: €175,000 (50% of €350,000)
• Tax-free threshold: €20,000
• Taxable amount: €155,000
• Tax at 33%: €51,150

Over fifty thousand euros to pay Revenue - at the worst possible time - for inheriting your own home.

The Solution: Two "Life of Another" Policies

The way to avoid this trap is to take out two separate "life of another" mortgage protection policies, with each partner paying the other's premium from their own bank account.

This is crucial - it's not just about having two policies. The specific structure determines the tax treatment.

How it works:

Setup:

• Partner A takes out a policy on Partner B's life for the full mortgage amount (€300,000)
• Partner B takes out a policy on Partner A's life for the full mortgage amount (€300,000)
• Partner A pays the premium for the policy on Partner B's life from their own account
• Partner B pays the premium for the policy on Partner A's life from their own account
• Both policies are assigned to the mortgage/lender

When Partner B dies:

Partner A's policy (which covers Partner B's life and which Partner A owns and paid for) pays out the full mortgage to the lender.

Because Partner A owned and paid for that policy, from Revenue's perspective, Partner A has only inherited Partner B's share of the net equity in the property (property value minus mortgage), not the gross value.

Real example: Dublin couple with €300,000 mortgage on €400,000 home

Partner B dies:

• Property value: €400,000
• Mortgage cleared by Partner A's policy: €300,000
• Net equity in property: €100,000
• Partner A inherits 50% of net equity: €50,000
• Tax-free threshold: €20,000
• Taxable amount: €30,000
• Tax at 33%: €9,900

Compare this to a joint life policy where Partner A would inherit 50% of the gross property value (€200,000), resulting in a tax bill of €59,400.

The saving: €49,500 - just by structuring the policies correctly.

Real Cost Comparison

Dublin couple: €300,000 mortgage on €400,000 home over 30 years

Option 1: Joint Life Policy

• One policy covering both for full €300k mortgage
• Lower monthly cost
• Creates CAT bill: €59,400 (inheriting €200,000 gross property value)

Option 2: Two "Life of Another" Policies

• Partner A: policy on Partner B's life for €300k
• Partner B: policy on Partner A's life for €300k
• Each partner pays their own policy premium
• Typically €8-15 more per month combined
• CAT bill: €9,900 (inheriting €50,000 net equity)

The difference: €49,500 in tax savings for roughly the price of a few takeaway coffees per month.

And this calculation becomes even more dramatic in the early years when your mortgage balance is higher and net equity is lower.

How to Structure Your Policies Properly

When you're applying for mortgage protection, here's exactly what to request:

Step 1: Tell your broker you want two separate "life of another" policies - NOT joint life.

Step 2: Each partner takes out a policy on the other person's life for the full mortgage amount:

• Partner A gets a policy covering Partner B's life for 100% of mortgage
• Partner B gets a policy covering Partner A's life for 100% of mortgage

Step 3: Each person pays their own policy premium from their own bank account. This is critical for the tax treatment - Partner A pays for the policy on Partner B's life, Partner B pays for the policy on Partner A's life.

Step 4: Both policies get assigned to your mortgage. The lender's solicitor handles the dual assignment - it's standard procedure.

Your bank might try to steer you toward joint life because it's simpler for their paperwork. Stand firm. This specific structure - "life of another" policies with each partner owning and paying for the policy on the other's life - is what dramatically reduces CAT liability.

Important note: While this structure dramatically reduces your CAT bill, it doesn't eliminate it entirely. Using our Dublin example, you'd still face a €9,900 tax bill on the inherited net equity.

To cover this remaining liability, you have two options:

• Increase each mortgage protection policy by the estimated tax amount
• Take out separate life insurance policies specifically to cover the potential CAT bill

After three years: If you've lived in the property as your main home for three years before your partner dies, and you continue living there for six years after, the Dwelling House Exemption may eliminate the CAT liability entirely. However, you can't rely on this timing - proper insurance planning protects you regardless.

Additional Benefits of "Life of Another" Structure

Beyond the CAT advantage, this structure offers other benefits for unmarried couples:

Relationship flexibility: If you separate, each person owns their own policy. No complex negotiations about joint cover - you each simply stop paying your policy premium and cancel.

Individual control: Each person can increase their own policy, add serious illness cover, or make changes without needing the other's consent.

Protection continues: If one person dies, the surviving partner still has their own policy in place (though it becomes redundant once the mortgage is cleared).

Common Questions

Will lenders accept this setup?

Yes, absolutely. Lenders care that there's adequate mortgage protection assigned to the loan. Whether that's one joint policy or two "life of another" policies makes no difference to them - both structures clear the mortgage if someone dies.

Isn't this more expensive?

Typically €8-15 per month more combined compared to joint life. You're essentially taking out two full policies instead of one. But saving €50,000+ in CAT makes this a small price to pay.

What if we can't afford two full policies right now?

At minimum, consider this structure even if you need to start with lower cover amounts. You can always increase the policies later. Some cover with proper tax planning beats full cover with massive tax liability.

Do we need to tell the bank we're unmarried?

The bank doesn't ask about marital status for mortgage protection purposes - they just want adequate assigned cover in place. But your broker absolutely should ask, because it dramatically affects how your policies should be structured.

Can we switch from joint to "life of another" policies?

Yes. You can switch mortgage protection policies at any time. If you currently have joint life and aren't married, get quotes for two "life of another" policies and compare the extra monthly cost versus the CAT liability you're avoiding.

What If You Already Have Joint Life Cover?

Don't panic, but do act. Here's what to do:

Calculate your potential CAT liability: Take your current property value (not mortgage), divide by two, subtract €20,000, multiply by 33%.

Get quotes for two "life of another" policies based on your current mortgage balance and remaining term. Remember - each policy needs to cover the full mortgage amount.

Compare the extra monthly cost versus your CAT liability. In almost every case, switching makes overwhelming financial sense.

Apply for the new policies first, ensure they're in place and assigned, then cancel the joint policy. Never leave a gap in coverage. The process typically takes 1-2 weeks for healthy applicants.

The Bottom Line

If you're buying a home with someone you're not married to in Ireland, two "life of another" mortgage protection policies - where each partner insures the other's life for the full mortgage amount and pays their own premium - can save your partner from a massive tax bill.

The cost difference is modest - typically €10-15 more per month than joint life. But the CAT savings are enormous - potentially €40,000 to €100,000+ depending on your property value and equity.

Don't let your bank or broker default you into joint life cover without understanding the CAT implications. Ask specifically for two "life of another" policies, with each covering 100% of the mortgage and each partner paying their own premium from their own account.

Ready to Protect Your Partner Properly?

Don't leave your partner exposed to unnecessary inheritance tax. Get quotes for properly structured "life of another" policies that minimize CAT liability while fully protecting against mortgage debt.

Get Your Free Mortgage Protection Quote →

QuoteLeader compares Ireland's leading insurers to find you the best rates on two "life of another" policies. Our team understands the CAT implications for unmarried couples and will structure your cover correctly from day one - each partner insuring the other's life for the full mortgage amount, with separate premium payments to minimize tax exposure.

Or speak with our experts: Call us on 01 539 44 50 to discuss how to set up your mortgage protection to dramatically reduce the inheritance tax trap.

Please note: Here at QuoteLeader.ie we are not qualified tax advisors and this article is to give you a brief overview on this topic. If you have any concerns with regards to how this may impact you personally you should seek professional tax advice.

Northstar Financial Planning Limited trading as QuoteLeader is regulated by the Central Bank of Ireland, registration number 190060.