As reported in the news last week, two Irish men have married in Dublin to avoid paying €50,000 in inheritance tax on a house. Best friends Matt Murphy and Michael O’Sullivan are both heterosexual, but decided to get married when they discovered how much tax would have to be paid on the house Murphy, 83, intended to leave in his will to O’Sullivan, 58, who is his carer. Same sex marriage was legalised in Ireland following a referendum in May 2015.
Here they are seeking to take advantage of the Irish IHT rules (similar to the UK) that mean that there is no IHT on transfers between spouses.
Although these guys are likely to be safe from an IHT perspective they need to be careful what they are telling the press. The Guardian recently reported that Murphy could not afford to pay O’Sullivan as a carer and O’Sullivan explained “eventually Matt said the only way he could pay me was to leave me the house. He said he would give me the house so I have somewhere to live when he goes.”
They are treading on dangerous ground here as the IHT argument will not protect O’Sullivan from any income tax implications if it can be argued that he is receiving the house as a payment for the carer services that he has provided (under an implied contract). In this case the full value of the house could be subject to income tax! For their ‘scheme’ to work any bequest should be made purely on the basis of friendship and not as a payment for services provided.
Will this open the flood gates and lead to male friends (and female friends) marrying for tax reasons? This is unlikely to happen because (to state the obvious) this avenue will not be available to people who are already married and also most people want to leave their estate to family members who they cannot legally marry (!).
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