Since Christmas the rules governing the tax payable when parents gift property to their children have become more stringent. The Dwelling House Exemption” has had its application reduced significantly.
Revenue has lauded the move estimating that it has lost up to 18.76 million euro in the years 2011-2015 resulting from the broad scope of the exemption.
The relief used to apply by allowing a person to be gifted property on the condition that they live in the property for three years and retain ownership of the property for six years after it was gifted to them, which in turn would extinguish any tax liability from re-emerging. The exemption was intended to apply between parents and children but it ended up being used in other circumstances too.
With the exception of relatives that are either incapacitated or over the age of 65 the Dwelling House Exemption now only applies to inheritances. Furthermore the exemption will only apply to inheritances where it was the donor’s principal private residence.
Some of the criteria remain the same for the exemptions applicability as the person inheriting the property will still have to have lived in it for three years prior to the gift and retain ownership for six years thereafter. If the person inheriting the property does not retain ownership for 6 years Revenue will be entitled to a percentage clawback of the Capital Gains Tax that would have been payable had the exemption not applied at the date of the inheritance.
The new rules came into force over Christmas but will not apply to any gifts or inheritances made up to the signing of the Finance Act 2016.