New rules make it harder for parents to gift property to their children

The new Help-to-Buy scheme for first-time buyers received plenty of publicity when it came into force at the start of the year.

However, another new rule also came into play over the festive period which could also have an impact on the property market.

This new rule will make it much harder for parents to gift property to their children.

The previous dwelling-house exemption had allowed a person to be gifted ownership of a property without having to pay inheritence tax as long as they lived in the property for three years before the gift or inheritence was made ad for a further six years thereafter.

The original polciy was in place to ensure that a person living with the deceased did not have to sell the house to pay the tax liability.

However, it was later expanded so that anybody – even if not related at all to the donor – could avail of the exemption.

Claims of abuse of the system then led to pressure for reform.

Figures for the Revenue show that almost 3,000 claims for the dwelling-house exemption were made between 2011 and 2015. The numbers jumped 14 per cent in 2014 and 19 per cent in 2015.

According to The Irish Times, TD Joan Collins said some families were using the section 86 exemption relief “where second and in some cases third and fourth homes are being bought for children, often for over €1 million”.

She said as many as 740 people availed of the scheme in 2015 and said “the abuse of this scheme has been a concern of Revenue for years”.

Now the rules have been tightened sharply.

The exemption will apply only to people inheriting homes, with only one exception. Gifting shall be possible only for relatives and then only if they are permanently or totally incapacitated from providing for themselves by virtue of a physical or mental infirmity, or else if they are older than 65 years of age.

In the case of inheritance, the exemption will apply only to the donor’s main home – or principal private residence. Until now a person could buy a home in which their child would live independently and then inherit it tax-free on their parent’s death.

The person inheriting will have to have lived with the person giving them the home for at least three years before they inherit and, as before, stay in the property for six years thereafter.

A previous relief ending that provision at the age of 55 has now been risen to 65.

The Revenue Commissioners “conservatively” estimate that the dwelling-house exemption cost the exchequer an average of €3.75 million a year between 2011 and 2015, or €18.76 million in total.