Woman entitled to tax exemption after inheriting family home

A High Court judge has ruled that a Dublin woman who inherited her family home is entitled to a tax exemption.

Ms Justice Caroline Costello agreed with a finding by a Tax Appeals Commissioner that Leanne Deane is entitled to an exemption under section 86 of the 2003 Capital Acquisitions Tax Act after she inherited her family home at Aranleigh Mount, Rathfarnham.

The exemption is known as the dwelling-house exemption, and the court’s decision has important implications for the assessment of taxes concerning the inheritance of a family home. The action arose following a ruling by a Tax Appeals Commissioner last year.

Ms Deane’s father, who was predeceased by his wife, died in October 2010 and Ms Deane and her brother inherited equal shares of their father’s estate.

Under a deed of family agreement, they agreed she would inherit what had been the family home, where she had lived for many years prior to her father’s death, and where she currently resides.

Under that 2011 agreement, Ms Deane also acquired a share in four other residential properties. Her brother, as part of the agreement, received an interest in other assets in their father’s estate.

Exemption

Ms Deane then applied for a tax exemption the under the 2003 Act, which was refused by Revenue on the basis that she had inherited a share in the other properties.

She received a notice of assessment from Revenue that she had to pay €52,000 in Capital Acquisitions Tax as a result of inheriting the family home. She appealed that finding to the commissioner which late last year found Ms Deane had satisfied the conditions necessary to avail of the section 86 exemption in respect of her family home and reduced the assessment to zero.

Arising out of the commissioner’s decision Revenue asked the High Court to determine several questions including if the decision that Ms Deane is entitled to claim the exemption is correct in law.

Revenue asked the court to determine if Ms Deane was precluded from claiming the exemption on the basis she was at the time of the inheritance beneficially entitled to any other dwelling houses.

Revenue claimed the commissioner had erred in the manner in which the decision had been arrived at, arguing that section 86 was designed to ensure that persons who inherited family homes, where they themselves had been living, would not end up with a tax liability that would result in them having to sell the property and ending up homeless.

Entitled

Martin Hayden SC and Eoin O’Shea BL, for Ms Deane, argued that their client was entitled to the exemption. Counsel said that at the date of her father’s death Ms Deane did not have any interest in any other dwelling houses other than the family home. She only came to have such an interest at a later date.

It was also argued that legislation concerning inheritance tax ought to, but fails to provide certainty for such taxpayers.

In her ruling, Ms Justice Costello said the commisisoner’s finding was correct and it was clear that as a matter of succession law, Ms Deane did not become beneficially entitled to any interest in any of the dwelling houses until March 2011 at the earliest.

The date of inheritance in the 2003 Act does not import that the date of death of the testator and the date a successor becomes beneficially entitled to a benefit in the estate are the same event, the judge said.

The matter will return before the courts in October.