Changes to Section 86 – Dwelling House Exemption
The Dwelling House Exemption, in its current form, provides an exemption from Capital Acquisition Tax (“CAT”) for beneficiaries who have occupied a house as their main residence for three years or more, subject to certain conditions.
Significant changes to the Dwelling House Exemption, provided for under Section 86 of the CAT Consolidation Act 2003, have been included in Finance Bill 2016 at Committee Stage.
In summary, it is proposed that the Dwelling House Exemption will only apply in the following limited set of circumstances:
- Gifts to a relative aged 65 or over;
- Gifts to an incapacitated relative; or
- An inheritance (where the disponer occupied the house as his/her main residence at his/her date of death).
There was concern by Revenue, that the Dwelling House Exemption was being used contrary to the original intentions of the legislation when it was introduced hence the introduction of these changes.
However, while it was expected that some changes would be made to the Dwelling House Exemption (such as capping the relief), the extent of the proposed changes has much wider application and will therefore impact upon a lot of individuals. For example, where a proposed beneficiary is under 65 and in the midst of the three year period of occupation, it appears that the Dwelling House Exemption will not be available on a gift of the house after Finance Bill 2016 has been enacted.
On a more positive note, the exemption has been expanded to provide that any periods of absence from the house for employment purposes will not be disregarded when determining whether the beneficiary has occupied the house for the requisite 6 year clawback period after the gift/inheritance.
It is envisaged that the changes will be introduced with effect from the date of enactment of the Finance Bill, which is expected to take place in late December 2016.
If you would like to discuss the proposed changes please contact us as soon as possible, to determine your position before the enactment of the Finance Bill.