Everyone is aware that significant changes were introduced in the 2016 Budget but have you thought what they might mean for you?
Prior to 25th December 2016, Section 86 CATCA 2003 provided a means of passing on a property to the next generation, either by gift or inheritance, in a tax free manner.
The exemption from Capital Acquisitions Tax for a gift or inheritance of a dwelling house or part of a dwelling house applied if the following conditions were met:
- the donee/successor/beneficiary who received the gift or inheritance must have continuously occupied the dwelling house as his/her sole or main residence throughout a period of three years immediately up to the date of the benefit or
- in circumstances where the dwelling house replaced another property, the donee/successor/beneficiary must have occupied the property as his/her only or main residence for a period of three out of the four years immediately before the date of the benefit and
- the donee/successor/beneficiary must not at the date of the gift/inheritance have been beneficially entitled to any other dwelling house or interest in any other dwelling house and
- in circumstances where the donee/successor was aged under fifty five years, he/she must have continued to occupy the dwelling house as his/her sole or main residence for six years beginning on the date of the gift or inheritance.
What’s the situation from 25th December 2016?
- The Dwelling House Relief is available for inheritances of a dwelling house or part of a dwelling house only. It is no longer available for gifts or gifts which convert to inheritances in circumstances where the donor dies within two years of the date of the gift.
- The donor must have occupied the dwelling house as his/her sole or main residence at the date of his/her death. Please be aware that this requirement will be relaxed in situations where the deceased person could not remain in the dwelling house due to mental or physical infirmity. In other words if that individual requires specialist care in, say, a nursing home and as a result, has to leave his/her home, then he/she will be deemed to continue to occupy the property during that period.
- The beneficiary/successor must have occupied the dwelling house as his/her sole or main residence for a continuous period of three years preceding the date of the inheritance. In other words, the house must be occupied by both the person making the gift at the date of death and the beneficiary receiving the gift at the date of the inheritance. Please be aware that this requirement does not apply in the case of a gift of a dwelling house to a “Dependant Relative.”
- The beneficiary/successor must not have an interest in any other dwelling house or part of a dwelling house at the date of the inheritance and
- The beneficiary/successor must continue to occupy the dwelling house as his/her main or sole residence for six years from the date of the inheritance. Please be aware that this requirement will be relaxed in situations where the beneficiary/successor cannot remain in the dwelling house due to mental or physical infirmity or because the terms of his/her employment requires him/her to live elsewhere.
- The Dwelling House Relief will however be available on a gift of a dwelling house which is made to a “Dependant Relative.” This is defined as a direct relative of the person making the gift or his/her spouse/ civil partner, and who is permanently and totally incapacitated by reason of mental or physical infirmity or is over the age of sixty five years.
What does this mean?
The amendment to Section 86 CATCA 2003 (Exemption relating to certain dwellings) has removed a valuable tax planning opportunity and will lead to unforeseen tax liabilities for individuals who receive gifts.
To most it seems like an excessive way of addressing the problem of wealthy families using this exemption as a means of transferring property to the next generation tax free. For many families in Ireland the “Dwelling House Relief” was used by parents to help their children get on to the property ladder. Some, however, welcome this amendment stating that it will ensure that family members who genuinely want to live with and care for elderly parents will inherit the family home tax free providing the conditions are met.
It is also important to keep in mind that since the conditions for this Relief are based on mental or physical infirmity then medical proof will be required to avoid a claw-back of the relief.
- Section 86 CATCA 2003 Dwelling House Relief is only available for inheritances unless a gift of a dwelling house is taken by a Dependant Relative who is permanently or totally incapacitated or aged over sixty five years.
- The age at which a beneficiary/successor can take a property without being liable to the claw-back provisions has been increased from fifty five years to sixty six years.
- The house must be occupied by both the disponer and the beneficiary at the date of the inheritance except where the property was gifted to a dependent relative.
- The property is the only residential property that the beneficiary/successor is beneficially entitled to.