Capital Acquisitions Tax Dwelling House Relief challenged in the High Court

In a recent case the High Court was asked to clarify the criteria for inheritance tax exemptions. The Tax Appeals Commissioner (TAC) reversed a 2017 decision of the Revenue which disallowed Ms. Deane from receiving a “dwelling-house” exemption.

A “dwelling-house” exemption excuses a person from paying Capital Acquisitions Tax (CAT), or Inheritance Tax as it is sometimes referred to, on a property in which they are a full-time resident. Anyone who inherits or receives a gift of property, money and items over a certain value must pay CAT. The current rate of which stands at 33%. The “dwelling-house” exemption was created to prevent a person from being forced to sell their home just to pay the tax.

To qualify for the exemption, which is provided for under section 86 of the Capital Acquisitions Tax Act 2003, a person must be living in the house three years prior to the date of inheritance. From this date a person must then live in the property continuously for six further years. Additionally, on the date of inheritance a person must not hold a beneficial interest in any other property.

The case before the High Court involves Ms. Deane, whose father passed away in 2010 leaving her and her brother equal shares in his estate. Under a Deed of Family Agreement, she received the family home. Ms. Deane has lived in the property for a number of years and continues to reside there presently. In addition to the family home, Ms. Deane also received shares in four other properties.

Ms. Deane was charged €52,000 in Capital Assets Tax on her home which she successfully appealed to the TAC. However, Revenue has challenged the decision believing Ms. Deanne is disqualified from the exemption because of her shares in other properties. Counsel for Ms. Deane argued she is entitled to the exemption as prior to her father’s death she held no interest in any properties. It is unclear form the legislation whether a person who inherits interest in multiple properties at once is entitled to the tax exemption. Even if Ms. Deanne is successful the exemption will only apply to her residence, the payment of CAT is still required on all other assets she inherits.

The decision of Justice Costello of the High Court has been reserved for a later date. It is hoped her judgement will provide clarity for those in similar circumstances to Ms. Deane.