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Abolition of dwelling-house exemption

Closeup shot of red and blue front doors adjacent to each other

On 25th December 2016, new rules come into force making it much more difficult for parents to gift property to their children.

The new rules have restricted the “dwelling-house exemption” from inheritance tax, which puts an end to persons gifting homes to their children and thereby allowing a child to inherit the property tax-free.

The original objective of the dwelling-house exemption was to alleviate the hardship of an inheritance tax on a person who was gifted a property where they lived, and to help ensure that the person did not have to sell the house to pay the tax liability. The exemption came with a condition that the person receiving the gift lived in the property for three years before and for six years after the gift of the property.

However, Revenue figures showed an abuse of this exemption, and this abuse has led to reform with new rules.

Now, section 86 of the Capital Acquisitions Tax Consolidation Act 2003 provides that inheritances of a dwelling house taken on or after 25th December 2016 will be exempt from capital acquisitions tax provided the following conditions are satisfied:

a) The donor must have occupied the dwelling house as his/her only or main residence at his/her date of death;

b) The beneficiary must have continuously occupied the dwelling house as his/her only or main residence for a period of three years immediately before the date of the inheritance;

c) The beneficiary must not be entitled to an interest in any other dwelling house at the date of the inheritance; and

d) The beneficiary must continue to occupy the dwelling house (except where such beneficiary is aged 65 or over) as his/her only or main residence for a period of six years from the date of the inheritance.

There are variations to the above rules in the event of incapacitation, and full legal and/or tax advice should be sought in all circumstances.

As can be seen, these requirements serve to tighten the scope of the exemption considerably.

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