Vol. 552 No. 2
76 Mr. N. Ahern asked the Minister for Finance the way in which cash receipts derived from home equity plans are treated for tax purposes; if an income is assessed from them; if this is treated as another capital sum; if there is a special exemption for pensioners; and if he will make a statement on the matter. [12254/02]
On the assumption that the question relates to "equity release" plans which are arranged by financial institutions for elderly home owners who wish to realise some of the value in their homes while continuing to remain in occupation, I am advised by the Revenue Commissioners that there is no specific legislation governing such equity release arrangements. However, the general position regarding capital gains tax and income tax implications of such an arrangement is as follows.
A typical example would be where a capital sum is obtained by a home owner through a mortgage arrangement with a financial institution. The institution grants a mortgage of, say, 25% of the value of the property which is then available to the home owner to deal with as he or she wishes. Under the arrangement, the interest falling due on the capital sum is payable by the home owner but rolled-up by the financial institution. On the death of the individual, the total amount outstanding, that is mortgage amount and accumulated interest, would be recouped by the financial institution from the estate of the individual through the charge on the property. In such circumstances, the capital payment received by the home owner is not liable to income tax or capital gains tax.
Where a capital sum is received under an arrangement which would involve a change of ownership of the property, and where the home owner retains a right of residence, there is no income tax liability involved and no liability to capital gains tax in circumstances where the property had been the principal private residence of the individual during his or her period of ownership. Where under an equity release arrangement, regular income payments, as distinct from capital payments, are received by the home owner these income payments are liable to income tax in the normal way.
