Dáil Éireann debate -
Tuesday, 1 May 2001

Vol. 535 No. 1

Written Answers - Inheritance Tax.

Liz McManus

Question:

260 Ms McManus asked the Minister for Finance the changes he is making to deal with the anomaly whereby couples cohabiting in a long-term relationship who are not married are subject to inheritance tax when a partner dies. [11664/01]

Minister for Finance (Mr. McCreevy)

In the 2000 budget I made substantial changes to the capital acquisitions tax (CAT) legislation, to apply to gifts and inheritances taken on or after 1 December 1999. The measures include the introduction of "dwelling house" relief which provides that the transfer of a home will be exempt from CAT subject to certain conditions.

The first condition is that the home is the principal private residence of the recipient and that the recipient has been living in the home for the three years prior to the transfer. Where the house has replaced other property, this condition may be satisfied if the recipient has continuously occupied both properties as his or her only or main residence for a total of three of the four years immediately prior to the transfer.

The second condition is that the recipient must not have an interest in any other residential property, and the third is that the recipient must own and reside in the house for six years after the transfer. The relief will be withdrawn if the recipient sells or otherwise disposes of the house within six years. If the recipient sells the home within six years and invests some or all of the proceeds in a replacement home and continuously occupies both homes for a total period of six of the seven years, commencing on the date of the transfer, the tax will be limited to any proceeds not reinvested in the replacement home. This six-year condition will not apply to recipients over 55 years of age and provision will also be made for circumstances where the recipient is unable to comply with the residence requirement for reasons outside their control, for example as a result of hospitalisation or work obligations.

If the above conditions are met, there will be no CAT liability on the transfer of a home regardless of the nature of the relationship between the disponer and the recipient. This relief is available in addition to the group III exemption threshold of £15,840 which applies to gifts and inheritances between non-relatives. If an individual has received previous gifts or inheritances since 2 December 1988 from a group III source, the value of these benefits must be taken into account for the purposes of determining the current, if any, liability to tax.

I am confident that this particular measure should remove the tax burden on the home for many people, including those in family and personal relationships who are otherwise treated as strangers under the CAT law. Any further tax relief for cohabiting couples may give rise to difficulty, for example any extension of the treatment given to married couples for tax purposes would involve recognising relationships in the tax code, which have not been recognised in the context of general law. In general, it is not appropriate for tax law to pre-empt general law.

The significant package of measures contained in the 2000 budget constitutes the biggest single easement in the structure of CAT since its introduction in 1976. I consider that the "dwelling house" relief, taken in conjunction with other measures such as the single 20% rate, will reduce the CAT liability for all beneficiaries. I replaced the old higher rates of 30% and 40% with the single rate as I considered that the previous rates would have imposed a considerable burden in circumstances where the thresholds are exceeded by relatively modest amounts. I ruled against any further changes in the budget on account of Exchequer costs but the issue of CAT will be kept under review.