Section 52 of the Finance Act 2016 significantly restricted dwelling house relief, by no longer allowing for gifts of dwelling houses in many circumstances and by limiting how it can operate in the context of inheritances.
Since the commencement of Section 52, a person who leaves a dwelling house as an inheritance in a will to a person who lived in the house as his or her only or main residence for three years immediately preceding the date of the inheritance, with the deceased person, that person gets the property with no Capital Acquisitions Tax liability. If either the owner or successor were absent from the house due to physical or mental ill health, they are deemed to have lived in the dwelling house at that time.
To qualify, a successor must not have any interest in another dwelling house at the date of the inheritance, in the State or abroad.
Until the commencement of Section 52 of the Finance Act 2016, in certain circumstances, a person could have taken a gift of a property with no Capital Acquisitions Tax liability if it was proven that the property was his or her principal private residence for a certain period of time.
Since the change in the law, only gifts to a “dependent relative” of the owner of the property, would qualify for dwelling house relief, therefore the law has become much more restricted than before the 2016 Act, in the context of gifts.
A “dependent relative” is defined as a relative who is “permanently and totally incapacitated” due to mental or physical infirmity and cannot maintain herself or himself, or who is of the age of 65 years or more at the date of the inheritance. “Maintain” means to support oneself by earning an income from working. “Permanent incapacity” means there is no prospect of the person recovering or the condition improving, to the extent that the person would become capable of maintaining him or herself. Therefore “incapacity” must be significant.
If a relative is not incapacitated but over the age of 65, he can qualify for the exemption if he satisfies the criteria, i.e. that he was living in the house for the requisite period, with the owner.
“A dwelling house” is defined as a building or part of a building which is suitable for use as a dwelling and includes grounds of up to one acre.
When claimed, dwelling house relief should be claimed in the IT38 Form by a successor as part of his self-assessment process in the usual way. Revenue may look into any self-assessment as part of its audit procedures. If this is done, a person may be asked for documents, including:
- Evidence of living at the property.
- Doctor’s letter confirming incapacity.
- Any other documentation relevant to the claim.
15 September 2017