REVENUE COMMISSIONERS DECIDE NOT TO APPEAL HIGH COURT DECISION ON DWELLING HOUSE RELIEF
The Revenue have decided not to appeal a recent High Court decision which has a significant impact on dwelling house tax relief. The legislation underpinning the relief requires a successor not to have an interest in more than one dwelling house at the date of the inheritance.
In this particular case, the taxpayer inherited more than one dwelling house from the deceased. The dwelling houses formed part of the residue of the estate of the deceased. The residue of a deceased person’s estate comprises the possessions which are left after the payment of specific gifts, debts, funeral expenses and inheritance tax. Revenue had initially disallowed the dwelling house exemption on the basis that the taxpayer became beneficially entitled to both dwellings at the same time as part of the same inheritance. However, the High Court decided that the taxpayer could not be beneficially entitled to a house forming part of the residue until all the assets in the estate had been ascertained and were available for distribution.
CHANGES NOW INTRODUCED BY REVENUE
Revenue have now adopted a revised approach to the application of the tax emption to dwelling houses inherited as a specific legacy and those inherited as part of the residue.
A dwelling house forming part of the residue is not taken into account in determining whether a taxpayer has an interest in another dwelling house at the date of the inheritance. The relevant factors are whether a taxpayer already has an interest in another dwelling house before the date of the inheritance, or whether the taxpayer received more than one dwelling house as a specific legacy in the same inheritance.
IMPORTANT POINTS FOR TAXPAYERS
Arising from the decision and Revenue’s decision not to appeal, there are a number of important takeaways for taxpayers.
- Tax exemption rules: There is a clear distinction for the purposes of tax relief, between the treatment of an inheritance of a dwelling house as a specific legacy and that contained in the residue of the estate.
- Tax refund: There is a period of 4 years to claim a refund of inheritance tax incorrectly paid, on the basis of Revenue’s revised approach above.
- Planning: When making your will, you need to be acutely conscious of these nuances and draft your will appropriately.
EXAMPLES TO DEMONSTRATE WHERE RELIEF MAY BE AVAILABLE
Revenue provide some useful examples to demonstrate circumstances where relief may be available.
John inherits the family home from his father, which he has lived in with his father for 6 years prior to his death. At the date of inheritance, John co-owns a holiday home with his brothers. As he has an interest in another dwelling house at the date of inheritance no relief is available.
Liam inherits a specific bequest of the family home from his mother, in which he lived for 5 years before her death. He also inherited an interest in another dwelling house in the residue of the estate. He does qualify for relief on the family home, as the interest in the residue dwelling house does not constitute an interest at date of the inheritance. This in accordance with the High Court decision above.
Carmel is specifically given a dwelling house by her aunt which both had been living in. Carmel did not have another property in her own right. However, Carmel was also given a specific bequest of a 50% share of a holiday home in Kerry. As a result Carmel will not qualify for relief. Had the bequest of the holiday home been included in a residuary clause, relief could have been claimed on the family home.
There are other conditions that need to be fulfilled to qualify for the relief, in addition to the beneficial interest test above. For any advice or guidance on inheritance tax or probate, please contact members of our dedicated and qualified probate team.