What financial consequences does living together have for the tax you have to pay (income tax, inheritance tax)? Will you always pay more tax if you start living together or not? Does it make a difference to the Tax Authorities how you will live together, with or without a notarial cohabitation contract or conditions? What are the consequences of cohabiting for your healthcare allowance, rental allowance or other allowances from the Tax Authorities and the tax partnership?
Living together costs taxes and money
Many people think that if they move in together, they will spend more money and pay more taxes. In reality, whoever is going to live together can often share the costs and the tax consequences depend entirely on how you will live together. For example, if you start living together without a notarial cohabitation contract and there are no children, then you are not each other’s tax partners. This initially means that there are no tax consequences. Everyone does their own tax return and that’s it. However, cohabitation may have consequences for tax benefits and in particular for housing benefit. When assessing the application, the Tax Authorities will look at your joint income and this may mean that you will receive less housing allowance than if you live alone.
Tax partnership for income tax means paying more tax?
But if a notarial cohabitation contract has been concluded, you are married or have a registered partnership, then you are automatically each other’s tax partners. As the name suggests, this has tax consequences, but they do not have to be negative. In fact, because you file a joint income tax return, you can divide your deductions in such a way that you get the maximum amount of income tax back. This is especially an interesting option if one partner earns significantly more than the other. It makes quite a difference whether mortgage interest and healthcare costs can be deducted at more than 36% or at 52%. Savings can also be transferred for tax purposes. For example, cohabitation offers many options for shifting deductions and tax burdens.
Living together can also mean paying less tax
But living together in a tax partnership does not always have to mean that you will pay less tax. This way there will be no difference compared to an individual tax return if you have a comparable income and assets. The ability to move items between each other provides no additional advantage, but also no additional disadvantage. The major exception to this is the deduction of your medical expenses and healthcare costs. This deduction has a certain threshold that you must take into account and, for tax partners, this is based on the joint income. This will mean a higher threshold than would be the case individually and therefore less deduction.
Living together means fewer allowances, you are an allowance partner
If you start living together, you can be a benefit partner of the benefit applicant. This means that both incomes will be taken into account to determine the amount of the allowance. If you are a tax partner, you are by definition a benefit partner. If you live together without being a tax partner, you can be an allowance partner for housing benefit. After all, co-residents are seen as allowance partners for housing benefit. This may mean that you receive less housing allowance or, because your joint income is too high, even no housing allowance.
Fiscal partnership for inheritance tax
Married and registered partners are also tax partners for inheritance tax purposes, but this is not necessarily the case for cohabiting couples. If there is no notarial cohabitation contract, cohabitants automatically become tax partners for inheritance tax if they have been registered at the same address for at least five years. If there is a notarial cohabitation contract and you live together, you are still partners for inheritance tax purposes if:
- You are both of legal age.
- Registered at the same address.
- You are not blood relatives in a direct line. Not a father and his daughter, for example, but two brothers or sisters.
The big advantage is that the inheritance tax exemption will then be 680,645 euros instead of 2,274 euros (2022).
Conclusion: pay extra tax when living together?
The conclusion is that if you start living together, you will usually not pay more tax, but rather have the opportunity to pay less tax. This requires a tax partnership. However, there may be consequences for your allowances and in particular the housing allowance.
- Getting married in 2020/’21: limited community of property