You wrote recently about new rules for dwelling home relief and how eligibility is now more narrowly defined and, with one exception, confined to inheritance and not gifting.
I don’t think (at least I hope not) that the new section 86 means, as your article stated, that “the person inheriting will have to have lived with the person giving them the home for at least three years”.
The inheritant, I think, (and again, I hope) can take an interest in possession for three years after the death of the donor, sell his own property if necessary, but not take beneficial title to the property until the end of three years.
Can you clarify this one way or the other?
Mr G.H., email
Answer: The purpose of the comprehensive redrafting of section 86 of the Capital Acquisitions Tax Consolidated Act under which dwelling house relief operates was to ensure that certain perceived abuses of the provision were ended.
The measure, as I wrote previously, was originally introduced to protect people who had lived with and cared for relatives who owned property only to find themselves homeless following the homeowner’s death.
However, over the years, that original purpose was muddied so considerably that beneficiaries were expressly told they could not live in the property concerned unless obliged to by virtue of the age or infirmity of the owner. This led to a position where the measure effectively became a deliberately created loophole though which a growing number of wealthy families were providing homes, especially for their children, in a remarkably tax-efficient manner.
Under the reformed measure passed in the Finance Act, which was signed into law on Christmas Day, the gifting of homes under the dwelling house relief is ended unless the person concerned is a family member so incapacitated that they cannot provide for themselves. That means the relief, in general, applies only to homes passing under inheritance and where both the owner of the property and the person to receive it under inheritance are living in the property at the time of death – and in the case of the beneficiary for the three years previous.
There is an exemption for owners not living in the accommodation for medical need - ie people who were hospitalised in the run-up to their death – but nothing more general.
Not allowable
The scenario you propose appears to run a coach-and-four through the intent of tightening the legislation and Revenue has confirmed to me that it would not be allowable under the revised terms of the relief.
Specifically, they confirm that section 86 lays down that the home must be the principal private residence of the disponer at the date of his or her death. A separate requirement is that the successor must have lived there continuously as the successor’s sole or main residence for three years immediately preceding the date of the inheritance.
“[This] means that, in effect, the disponer and the successor will have lived together at the dwelling house in question for some or all of the three-year period prior to the date of the inheritance,” Revenue says.
“The reader appears to be suggesting that the date of inheritance could be pushed out by taking the approach set out in the scenario put forward. This is not the case. The date of the inheritance in the scenario put forward is the date of death of the disponer, and the successor would have to have resided at the dwelling house for three years preceding the date of death of the disponer, as well as meeting all of the other conditions, in order to qualify for the dwelling house exemption.”
That seems to be pretty cut and dried to me, effectively excluding the arrangement you understood to be valid under the terms of the relief.
Obviously this is new legislation and, as yet, untested. My reading of it appears pretty clear on this point and, certainly, Revenue seems to take the same view but, if you are still sceptical, it might be worth your while getting professional legal advice on the matter.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
