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If you’re buying a house and you’re not married, how you set up your mortgage protection can affect the inheritance tax bill if one of you dies. A standard joint policy can leave the surviving partner with a large tax bill. Most couples can reduce this by using a “life of another” structure. Getting this wrong can cost tens of thousands.
Married couples can pass assets to each other tax-free.
Unmarried couples can’t, which is why how you structure your mortgage protection is so important.
For example, if you inherit half a house worth €200,000, only €20,000 is tax-free. The remaining €180,000 is taxed at 33%.
That’s a tax bill of €59,400 – just to keep living in your own home.
If you’re not married, the way your mortgage protection is set up can significantly affect the inheritance tax bill if one of you dies.
Most couples use a standard joint policy, which can leave the surviving partner facing a large tax bill.
Using a “life of another” structure instead can reduce that exposure because the payout is treated differently for tax purposes.
The difference can be tens of thousands, depending on your mortgage and property value.
If you’re not married, the safest way to set up mortgage protection is usually with two single “life of another” policies.
That means each partner owns and pays for a policy on the other’s life, rather than sharing a joint policy.
It sounds like a small detail, but it can make a significant difference to the inheritance tax position if one of you dies in the first three years of the mortgage.
Most couples don’t realise this until it’s too late – after they’ve already applied.
Most couples take out a standard joint mortgage protection policy.
If one of you dies, the policy clears the mortgage, and the surviving partner ends up owning the house outright.
Sounds perfect.
But if you’re not married, Revenue may treat that house portion as an inheritance. And that’s where the problems start.
Let’s say you buy a house for €400,000 with a €200,000 mortgage.
If one partner dies, the survivor effectively inherits half the property, valued at €200,000.
The tax-free threshold between unmarried partners is €20,000.
Everything above that is taxed at 33%.
That leaves a tax bill of €59,400.
To keep living in your own home.
Stick your numbers in below and see how you structure your policy can reduce this tax bill.
CAT Tax Saving Calculator
This is a rough guide. We recommend professional legal/tax advice before setting up your policy.
The same rules apply to dual life policies as to joint
Another option is to increase your mortgage protection so there’s enough left over to cover a potential inheritance tax bill.
In that scenario, the policy clears the mortgage and leaves a lump sum behind to help pay the tax.
However, it doesn’t reduce the tax – it simply provides the money to pay it.
As with any tax-related decision, it’s worth getting independent legal or tax advice alongside your insurance setup, as the right approach will depend on your overall circumstances.
If you get married or enter a civil partnership, inheritance tax between spouses no longer applies.
At that point, the structure of your mortgage protection is irrelevant.
There is something called the dwelling house exemption, which can remove inheritance tax in certain situations.
To qualify, the surviving partner must have lived in the property for at least three years before the death and continue living there for six years after.
If either of you has any health issues, even something minor that you might not think matters, the first insurer you apply to matters.
Insurers assess risk differently. One insurer might offer standard terms, while another might apply a loading or postpone cover altogether.
If you apply to the “wrong” insurer first, you could end up with a worse outcome because better terms may have been available elsewhere.
And once you’ve applied, that decision doesn’t disappear. Future insurers will usually ask about previous applications, which can limit your options.
That’s why it’s important to get a clear view of the market before applying, especially if your case isn’t completely straightforward or you need some help with how to structure your policies.
Most people only realise this issue when it’s too late — after they’ve already applied.
If you want to get this set up properly from the start, complete this questionnaire and I’ll take a look.
Editor’s note: First published in 2021 and updated in 2026 to reflect current Irish inheritance tax rules, mortgage protection structures, and insurer practices for unmarried couples.
Written by Nick McGowan, QFA RPA APA
Nick is a qualified financial advisor and founder of Lion.ie, a multi-agency Irish life insurance and income protection brokerage based in Tullamore.
He’s been helping people secure fair, transparent cover for over 15 years and was named Protection Broker of the Year 2022.
If you’d like straight answers without the sales pitch, learn more about Nick here.
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