Client Alert – Changes To Dwelling House Relief

Introduction

For those of you who have taken estate planning steps (or are thinking of taking such steps) to avail of dwelling house relief, then it is important that you read further.

The Finance Act 2016 has revised the applicability of dwelling house relief and these changes came into effect on 25 December 2016. The new legislation now largely confines the relief to inheritances. The applicability of the relief to gifts has now been curtailed to apply only in very limited circumstances.

The New Regime

In order to avail of dwelling house relief under an inheritance the following conditions must be satisfied:-

1. The donor must have occupied the dwelling house as his/her only or main residence at his/her date of death. This requirement will be relaxed in situations where the deceased had to leave because of ill health e.g. to live in a nursing home.
2. 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.
3. The beneficiary must not be entitled to an interest in any other dwelling house at the date of the inheritance.
4. The beneficiary must continue to occupy the dwelling house (except where such a beneficiary is aged 65 or over) as his/her only main residence for a period of six years from the date of the inheritance. The exemption will not be withdrawn where the recipient requires long term medical care in hospital/nursing home/convalescent home or is required by reason of his employment to reside elsewhere.

The exemption now applies to a residential property gifted to a dependant relative of the donor. A dependant relative is a direct relative of the donor or of the donor’s spouse or civil partner who is permanently and totally incapacitated because of physical or mental infirmity or who is over the age of 65. In the case of a gift of a dwelling house to a dependent relative, the dwelling house is not required to have been the principal residence of the donor.

Conclusion

The changes imposed are significant. This is particularly the case in respect of gifts in that it has all been but abolished other than in very limited circumstances. With inheritances it is important to note that the donor must have occupied the dwelling house with the beneficiary at the date of death (save again in very limited circumstances).

It was common for many people to draft their Wills and put estate planning arrangements in place to benefit under the old regime. This will obviously now need to be reviewed in light of the Finance Act 2016.

For further information on this topic, please contact Brendan Sharkey on bsharkey@reddycharlton.ie