RSM Ireland

Dwelling house relief explained

John who is 80 and suffering from poor health wants his son Michael and Michael’s wife Mary, to move into his house to help care for him and John wishes to gift the house to them. Michael wants to know what the tax consequences will be for each of them?

There are several tax consequences for a transfer in this type of case. The two main tax heads that are relevant will be Capital Gains Tax and Capital Acquisitions Tax but Stamp Duty will also apply.

Capital Gains Tax

There is a taxable disposal when a property is transferred between connected persons even where there is no consideration other than natural love and affection.

The deemed consideration is the market value of the property. The main relief that may apply is Principal Private Residence (PPR) relief. Basically this means that if the house is the main residence of the transferor then the gain will be exempt from Capital Gains Tax.

There are several conditions that apply and if these are met, then the full gain is exempt from Capital Gains Tax irrespective of the size of the gain or consideration. In this case, the house is John’s only residence so the CGT exemption will apply.

Capital Acquisitions Tax

The Capital Acquisitions Tax issues that need to be considered are 1) availing of the lifetime tax exemption threshold and 2) the Dwelling House Relief(DHR).

The lifetime tax free threshold available for gifts or inheritances received from a parent is now €280,000 (from October 2015). The second relief referred to above is Dwelling House Relief. This relief is intended to relieve the beneficiary of a gift or inheritance of a house that had been and would continue to be the beneficiary’s.

The effect of the relief is to exempt from Capital Acquisitions Tax any qualifying transfer.  It is important to recognise that the relieving provisions do not exempt the transfer from CGT. In order to be exempt from CGT, the transferor would have to rely on specific Capital Gains Tax reliefs such as PPR above.

The DHR has come in for significant scrutiny in the past year or so as there has been some speculation that the relief has been used to transfer very valuable property to children in an attempt to obtain relief in circumstances not envisaged in the original relieving provisions. It should be noted that the relief is not solely applicable to transfers to children, although this is the most common circumstance where it applies in practice.

There is much speculation that the relief may be curtailed in the coming Budget. In order to avail of the relief, the beneficiary and transferor must both meet specific criteria:

  1. In the case of a gift, the transferor must have owned the house for at least three years prior to the date of the transfer.
  2. The beneficiary must have resided in the house for at least three years up to the date of the transfer. Ordinarily, periods when the disponer and donee reside together will not count as part of the donee’s three-year requirement. In this case, due to John’s age the period that all three reside in the house will meet the three-year requirement for Michael and Mary.
  3. The beneficiary must not have had an interest in any other residential property at the date of the transfer.
  4. The house must remain as the beneficiary’s sole or main residence for at least six years.


Reverting to the original query, the transfer will be exempt from Capital Acquisitions Tax if a gift of the house is deferred until at least three years after Michael and Mary take up residency and they have no interest in any other residential property at the date of the transfer.

We know that John has owned the house for at least three years and Michael and Mary must continue to reside in the house for six years after the date of transfer. The €280,000 threshold that is available to Michael on gifts or inheritances from his parents, will not be eroded and Mary’s €15,075 threshold for other gifts or inheritances from John will also be unaffected by the transfer. If the house is transferred by way of a gift, then stamp duty at 1% will apply. CGT exemption under Principal Private Residence relief will apply.


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Pat Keegan
Audit Partner

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