Dwelling house relief

With property prices on the rise, it is very easy for someone who inherits the family home to be faced with a Capital Acquisition Tax bill for inheriting the family home. The threshold for inheritance from parent to child is €335,000 and just €32,500 from another relative. If the family home was valued at €500,000, a child would have a CAT bill of €54,450.

For most, the solution is simple. Sell the property, pay the tax and keep the rest for yourself. But what if that house is also your home? Dwelling house relief recognises the cases where a person is living in a property as their home with someone else. If certain conditions are met, the beneficiary is exempt from CAT on the value of the home that they inherit.

Conditions

1. The house must be the main residence of the disponer at the date of death.
2. The beneficiary must have lived in the house for at least three years up to the date of inheritance. If the disponer had moved house in that three year period, the beneficiary must  have occupied the original property and the replacement house for at least three of the four years up to the date of inheritance.
3. The house must be the only house that the beneficiary is entitled to at the date of inheritance. In other words, they can’t have another property. This includes holiday homes and investment properties.
4. The beneficiary cannot take a further inheritance of a dwelling house from the same disponer.

The Revenue allow an exemption to condition 1 where the disponer has has to move out of the house due to ill health, most likely moving into a nursing home.

6 Year Clawback

You must own and occupy the house as your main residence for six years following the date of the benefit. If you sell the dwelling within that six year period, there is a clawback in relief.

You are, however, allowed to move house if you use the sales proceeds from the inherited house to buy the new home. In this case, you must have lived in both the inherited property and the new property as your main residence for at least six of the seven years from when you inherited the property.

There are some exemptions to this six year clawback:

1. The beneficiary is over 65 years of age at the date of inheritance.
2. You don’t own or occupy the property due to requiring long term care.
3. The sale, disposal or non-occupation of the property by the beneficiary is due to them requiring long term care.
4. The beneficiary is required to live somewhere else for their work.

As you can see, there are a lot of different conditions involved in availing of Dwelling House Relief and it is easy to get caught out. The ramifications of getting this wrong can be very costly and may result in the loss of your home. It is therefore vital that you get professional advice.

Steven Barrett

25 April 2022