Will-makers leaving more than one house to the same person may be able to save tax
Will-makers need to think again about how they leave houses, or a share or interest in them, to beneficiaries in their Will, as this may affect whether the beneficiary can claim relief from Capital Acquisitions Tax (CAT).
The law says that you don’t have to pay CAT if you inherit a dwelling house (whether in Ireland or abroad), provided you meet certain conditions. One of the conditions is that you mustn’t own or have an interest or a share in any other house (in Ireland or abroad) – including one you acquired as part of the same inheritance.
The Revenue Commissioners said that this meant someone (we’ll call them the ‘taxpayer’) who inherited two houses from a Will-maker in the same Will would be unable to claim the exemption, because they’d have a share or interest in more than one house.
But the taxpayer in one case argued that there was a difference between someone who is specifically left a house in a Will (what lawyers call a ‘specific legacy’) and someone who inherits a house because they are entitled to share in what’s left of the Will-maker’s estate after the specific legacies, debts, funeral expenses, etc have been paid (what lawyers call the ‘residue of the estate’) – and this happens to include a house (or a share or interest in it).
The High Court agreed. It ruled that, unlike a specific bequest, a beneficiary entitled to a house as part of the residue of a Will-maker’s estate did not become the owner of it until all the assets in the estate had been identified and were available for distribution to the beneficiaries.
The Commissioners have therefore said that they will change their approach. Now, a dwelling house that a taxpayer inherits because it is part of the residue of a Will-maker’s estate will be ignored when deciding whether they have an interest in more than one house at the date of the inheritance.
So the only problem is if the taxpayer:
- Already owns, or has a share or interest in, another house before the date of the inheritance; or
- inherited more than one dwelling house (or a share or interest in them) under the Will, but both were left to them as specific legacies.
For example, if you inherit the family home from your mother as a specific legacy (and you meet the other conditions for exemption from CAT), and you also inherit an interest from her in another dwelling house that forms part of the residue of your mother’s estate, you still qualify for relief from CAT on the family home, because your interest in the other house does not amount to another interest at the date of the inheritance.
But if your mother left you the family home as a specific legacy, and also a 50 per cent share in a holiday home as a specific legacy, you would not be entitled to the relief, even if you met the other conditions.
Will-makers planning to leave two houses, or a share or interest in them, to the same person need to consider whether it’s better to leave one or both of them as part of the residue of their estate, rather than as specific legacies. Some taxpayers who have already paid CAT based on the Commissioners’ previous approach may be able to claim a refund.
*In contentious business, a solicitor may not calculate fees or other charges as a percentage or proportion of any award or settlement.*
Contact us for more information
Will-makers need to think again about how they leave houses, or a share or interest in them, to beneficiaries in their Will, as this may affect whether the beneficiary can claim relief from Capital Acquisitions Tax (CAT).
Will-makers leaving more than one house to the same person may be able to save tax
Will-makers need to think again about how they leave houses, or a share or interest in them, to beneficiaries in their Will, as this may affect whether the beneficiary can claim relief from Capital Acquisitions Tax (CAT).
The law says that you don’t have to pay CAT if you inherit a dwelling house (whether in Ireland or abroad), provided you meet certain conditions. One of the conditions is that you mustn’t own or have an interest or a share in any other house (in Ireland or abroad) – including one you acquired as part of the same inheritance.
The Revenue Commissioners said that this meant someone (we’ll call them the ‘taxpayer’) who inherited two houses from a Will-maker in the same Will would be unable to claim the exemption, because they’d have a share or interest in more than one house.
But the taxpayer in one case argued that there was a difference between someone who is specifically left a house in a Will (what lawyers call a ‘specific legacy’) and someone who inherits a house because they are entitled to share in what’s left of the Will-maker’s estate after the specific legacies, debts, funeral expenses, etc have been paid (what lawyers call the ‘residue of the estate’) – and this happens to include a house (or a share or interest in it).
The High Court agreed. It ruled that, unlike a specific bequest, a beneficiary entitled to a house as part of the residue of a Will-maker’s estate did not become the owner of it until all the assets in the estate had been identified and were available for distribution to the beneficiaries.
The Commissioners have therefore said that they will change their approach. Now, a dwelling house that a taxpayer inherits because it is part of the residue of a Will-maker’s estate will be ignored when deciding whether they have an interest in more than one house at the date of the inheritance.
So the only problem is if the taxpayer:
Already owns, or has a share or interest in, another house before the date of the inheritance; or
inherited more than one dwelling house (or a share or interest in them) under the Will, but both were left to them as specific legacies.
For example, if you inherit the family home from your mother as a specific legacy (and you meet the other conditions for exemption from CAT), and you also inherit an interest from her in another dwelling house that forms part of the residue of your mother’s estate, you still qualify for relief from CAT on the family home, because your interest in the other house does not amount to another interest at the date of the inheritance.
But if your mother left you the family home as a specific legacy, and also a 50 per cent share in a holiday home as a specific legacy, you would not be entitled to the relief, even if you met the other conditions.
Will-makers planning to leave two houses, or a share or interest in them, to the same person need to consider whether it’s better to leave one or both of them as part of the residue of their estate, rather than as specific legacies. Some taxpayers who have already paid CAT based on the Commissioners’ previous approach may be able to claim a refund.
*In contentious business, a solicitor may not calculate fees or other charges as a percentage or proportion of any award or settlement.*
Contact us for more information