Dwelling House Exemption for Capital Acquisitions Tax
This relief is of particular importance for parents transferring properties to their children, which they will use as their private residence or for children purchasing property for their eldery parents. The relief also arises where elderly siblings are living together sharing a private residence and one of them dies leaving their interest in the property to the survivor. A brief summary of the rules applying is as follows.
Inheritance of A Dwelling House
- The relief applies to a residential property plus gardens up to one acre.
- The disponer must have lived in the property as their only residence at the date of death. This may be relaxed in cases where the disponer was out of the property due to ill health, e.g. care home.
- The beneficiary must have lived in the property as their only or main residence for a period of three years immediately preceding the date of the inheritance.
- The beneficiary must not own or have an interest in any other residential property.
- If the beneficiary is under sixty-five years of age they must continue to occupy the property as their private residence for a period of six years thereafter. If the property is sold within the six-year period and not reinvested in the purchase of a new property then the benefits of the original relief may be taken back. This also applies if the property ceases to be used as the beneficiary’s private residence within the six year period. There are also special rules for dealing with situations where the property is sold to fund medical care or the beneficiary ceases to use the residence because of moving to a nursing home or because the beneficiary is working abroad.
Gift of A Dwelling House
- A gift can be made only if the beneficiary is a dependent relative of the disponer. Relative is defined as a lineal ancestor, lineal descendent, brother, sister, uncle, aunt, niece or
nephew of the disponer or the spouse or civil partner of the disponer. Dependent is defined as a person who is permanently incapacitated or a person over 65 years. - Similar to inheritance:
- The beneficiary must have occupied the property as main residence for three years preceding the gift.
- The beneficiary must have no other interest in a property.
- If under sixty-five years of age, continue to reside there for six years.
Summary
There is a complete exemption from tax in these circumstances and it does not erode the tax-free threshold otherwise available. This is a very good relief and of great benefit for planning ways to reduce inheritance tax liabilities.
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