Gift Tax – Dwelling House Relief
Prior to the enactment of the Finance Act 2016, it was possible for a person, to allow another person to live in a dwelling house which they own for a period of three years without living there themselves. They could then, during their lifetime, give that person the property free from Gift Tax. The saving of Gift Tax was a significant saving as Gift Tax or CAT (Capital Acquisitions Tax), is charged at 33%.This Gift Tax – Dwelling House Relief was availed of to great effect, particularly in Dublin where property values are by their nature much higher than elsewhere in the country.
For example, parents could gift a Dwelling House worth 1 million euro to a child or children where that child or children lived in the property for three years before the gift. The current threshold over which a child must pay gift tax @33% is currently 310,000. Therefore, without the Dwelling-House relief, the child receiving the gift of a house valued at 1million euro would pay 33% tax on the other 690,000 euro which would amount to 227,700 euro. With the Gift Tax – Dwelling House Relief they did not have to pay any tax.
Unfortunately, as of the 25th December 2016, the law has changed significantly. Since that date, dwelling house relief will only be available for inheritances. I.E. where a house is gifted under a Will. Even where a house is gifted under a Will, the new Finance Act states that the deceased person, under whose Will the house is being must have lived in that house as their principal private residence at the date of their death.
*NB* Where the deceased person had to leave the house before their death due to ill health and for example, move into a nursing home, this requirement will be relaxed by Revenue when determining whether to allow the relief.
Therefore, with one exception, it is no longer possible to take a gift of a dwellinghouse tax-free from a parent or other person during their lifetime.
Exception to the abolition of Gift Tax – Dwelling House Relief on gifts during parent’s lifetime
The exception applies where a person gives a gift of a dwelling house to what is known as “a dependent relative”. The definition of “a dependent relative” for the purpose of claiming this relief is as follows:
- the person getting the gift must be a direct relative of the person giving the gift. Otherwise known as “the donor”.
- Or, a direct relative of the donors spouse or civil partner.
- And that the person receiving the gift is “permanently and totally incapacitated because of physical or mental infirmity from maintaining himself or herself”.
- Or where the the person receiving the gift is over the age of 65.
See the Revenue e-brief at the following link for a more detailed examination of the new provisions http://www.revenue.ie/en/practitioner/ebrief/2017/no-042017.html