Changes to Dwelling House exemption

Prior to budget 2017, there was a major concern by the government that wealthy people were using what was known as a “dwelling house exemption” to avoid having to pay significant inheritance taxes.
Basically, a person was able to pass a valuable property to any person (no relationship required) subject to compliance with certain conditions in terms of occupation and no inheritance tax would arise on the gift or inheritance.
New changes have now been introduced by the Finance Act 2016 which significantly curtails the circumstances in which the dwelling house exemption will apply.


Firstly, this exemption will now only apply to gifts if the dwelling house is gifted to a dependent relative. A dependent relative is defined as a direct relative of the donor (person giving property) or of the donor’s spouse or civil partner who is permanently and totally incapacitated because of physical or mental infirmity from maintaining himself or herself or who is a person over the age of 65. The donor does not have to occupy the dwelling as their principal private residence in these specific circumstances.


The exemption will only be available for inheritances when the following conditions are met:

  • The donor must have occupied the dwelling house as his/her only or main residence at his/her date of death;
  • The beneficiary must have continuously occupied the house as his or her only or main residence for three years before the date of the inheritance;
  • The beneficiary must not have an interest in any other house at the date of the inheritance and;
  • The beneficiary must continue to occupy the house (except where the beneficiary is aged 65 or over) as his or her only or main residence for six years after the

Essentially, the dwelling will have to be occupied by both the donor and the beneficiary at the date of the inheritance unless the donor had to leave the house for reasons of ill health or to live in a nursing home.
These changes apply to any inheritances of dwelling  houses or gifts of dwelling houses to dependent relatives after 25th December 2016.
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