Wealthy gifted €176m worth of property tax free in 2016

More than 600 people availed of a now restricted relief to pass on property worth some €176 million in 2016 free of tax, latest figures from Revenue show.

The data also shows that, in the six years to 2016, property worth more than €800 million was passed on tax free.

The relief, known as the “dwelling house exemption”, was restricted in 2016 amid fears that it was being used by wealthy people to pass on property, often second or multiple properties, free of tax to their adult children.

According to the figures, some 631 people benefited from the exemption in 2016, down from 741 in 2015. However, the amount of tax people saved by availing of the relief rose to €58 million, up from €52 million in 2015 and €41 million in 2014. That likely reflects recovering property values.

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It also means that the relief cost the exchequer €58 million in 2016, in capital acquisition tax (CAT) forgone on the value of the property gifted. At a CAT tax rate of 33 per cent, that figure indicates that assets worth some €176 million were inherited tax free in 2016, with an average property price of €278,922.

The relief, which was introduced by former minister for finance Charlie McCreevy, allowed someone to pass on a property free of inheritance tax if the person receiving the property had lived there in the three years leading up to the date of the inheritance, and, if aged under 55, also lived there in the six years after the inheritance.

And if the property was being gifted to them, they didn’t even have to live there. In fact, it was expressly ruled out unless the homeowner – who must have owned the property for three years – was over the age of 65 or ill and in need of care.

Originally, the scheme was designed to provide for people who had cared for elderly relatives in their homes for years only to find themselves evicted when the relative died and the family wanted to divide the estate.

Holiday homes

Initially, it only applied to elderly siblings who had lived with the homeowner for five years before their death.

But the exemption was subsequently broadened so that the beneficiary no longer needed to be related to the donor. Moreover, the “gifted” property did not have to be the owner’s home – it could be a holiday home or investment property.

This led to some concern in government that the relief was being abused, with wealthier families acquiring multiple pricey properties and passing these on to their children tax free as part of their tax planning, without the child losing any right to a subsequent tax-free inheritance.

The relief was tightened in the 2016 Finance Act, with the main requirement from December 25th of that year being that both the person giving the gift of property, and the person receiving it, must have lived together in the property for the three years preceding the inheritance.

The opportunity to gift property was also sharply curtailed at that time. It is now available only for beneficiaries who, in addition to living with the donor for three years before the gift is made, must be at least 65 years of age or unable to earn a living due to a physical or intellectual disability.

While Revenue has only published figures since 2011, these show that in the years from 2011 to 2016, some 3,588 claims were successfully made for the relief, at a total cost of some €269 million to the exchequer.

Based on the 33 per cent tax rate that has applied since the end of 2012, this would indicate that property assets worth some €815 million were passed on tax free in those years.