The below article is a follow-up from Inheritance and Tax - A Recent Query.

Can the dwelling house exemption apply in the case where a client inherits two properties at the same time?

In summary, a dwelling house qualifies for the exemption where:

• It was occupied as the only or main residence of a disponer at the date of his or her death (except in the case of a gift or an inheritance taken by a dependent relative);
• It was occupied by a successor as his or her only or main residence for the three years immediately preceding the date of the inheritance or, where the dwelling house for which the exemption is claimed replaced another dwelling house as the successor’s only or main residence, the combined period of occupation was at least three years falling within the four years preceding the date of the inheritance;
• A successor does not have a beneficial interest in any other dwelling house at the date of the inheritance (whatever way such an interest was acquired);
• A successor does not acquire a beneficial interest in any other dwelling house from the same disponer at any time after the date of the inheritance and up to and including the valuation date of that inheritance; and
• It is transferred by way of an inheritance, except in the case of a gift to a dependent relative, or such a gift that becomes an inheritance when a disponer dies within two years of making the gift (section 3(1)).

Therefore in order to qualify for the relief one must meet the above conditions. From the probate form, it appears she is becoming entitled to two residential properties even though one is a rental property, it would disqualify her from the relief as she cannot have a beneficial interest in any other dwelling house at the date of the inheritance.

The Revenue guidance on the Dwelling House exemption contains an example as follows:

Liam’s mother died in January 2020. Her will contained a specific bequest of the family home to Liam. He also hopes to inherit a rental house as part of the residue of the estate. At the date of the inheritance, Liam does not have a beneficial interest in any dwelling house. Probate is granted on 10 March 2021 (valuation date) and the net assets of the estate are sufficient for the personal representatives to pass the beneficial interest in both houses to Liam. Because he inherits both houses from the same disponer on the valuation date for the inheritance, he is not entitled to the dwelling house exemption for the family home.

Reference to the Deane Case is also made:

The ‘Deane’ case concerned a successor who inherited two dwelling houses from the same disponer. Revenue refused the dwelling house exemption on the basis that the successor, as part of the same inheritance, became beneficially entitled to both dwelling houses at the same time at the date of the inheritance. The dwelling houses were not bequeathed by a specific legacy but formed part of the residue of the estate. The High Court held that the successor did not have a beneficial interest in either of the dwelling houses at the date of the inheritance on the basis that a successor cannot become beneficially entitled to property which forms part of the residue of an estate until the property available for distribution has been ascertained. Depending on the debts payable out of an estate, the available assets may turn out to be insufficient to fulfil the terms of a will and to actually transfer an interest in dwelling houses to the intended successors. The judgement effectively meant that the exemption could only be refused where a successor already had an interest in another dwelling house at the date of the inheritance. Revenue did not appeal the judgement and started to operate the exemption in accordance with the effect of the judgement pending a legislative amendment to section 86.4 The effect of the judgement on Revenue’s operation of the qualifying condition relating to the limit on the number of dwelling houses in which a successor could have an interest.

Finance Act 2019 (section 64) amended section 86 in relation to the limit on the number of dwelling houses in which a successor could have an interest by replacing paragraph (2)(c) with a new subsection (4A). This amendment came into effect on 18 December 2019. The effect of the amendment is that the ‘test’ for beneficial interests held in any other dwelling houses is now applied both at the date of the inheritance (usually the date of death) and then throughout the period up to the valuation date for the inheritance. This ensures that all dwelling houses that are inherited as part of the same inheritance/estate are taken into account in determining whether a successor has an interest in another dwelling house

Therefore in this case, if the beneficiary according to the probate is entitled to two residential properties it would disallow the exemption.

If you have a tax query you need solving, contact Lisa or John from the OmniPro Tax & Legal Team on [email protected] / [email protected] or call the office on +353 (0) 539 100 000.

**The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.