This appeal to the Tax Appeals Commission (TAC) concerns the taxpayer’s entitlement to the capital acquisitions tax (CAT) dwelling house exemption – which exempts an inheritance of a house from CAT if conditions are satisfied. It focused on the meaning of ‘the date of the inheritance’ of the dwelling-house, and, if at that date the taxpayer was beneficially entitled to any interest in any other property and therefore the exemption was not available.

Background in brief

The dwelling house exemption is provided for under section 86 CATCA 2003. Changes introduced by Finance Act 2016 which restricted availability of the exemption pre date this appeal and are therefore not relevant.

On the death of the taxpayer’s fathers death (October 2010), the taxpayer and her siblings inherited equally all assets in her deceased father’s estate under the terms of his will. The taxpayer had resided in the family home since childhood and had cared for her parents during their illnesses.

A few months prior to the execution of the grant of probate (May 2011), the taxpayer and her siblings executed a deed of family arrangement, which determined that the taxpayer would receive a full (as opposed to a 50 percent) interest in the family home and that her siblings would receive full (as opposed to a 50 percent) interest in a business and business premises. The taxpayer also inherited a share in four other residential properties. The taxpayer claimed dwelling house exemption in respect of the inheritance of the family home.

The dwelling house exemption is not available if at the date of the inheritance; the claimant was ‘beneficially entitled to …. any interest in any other dwelling-house’. Revenue contended that the word ‘interest’ (section 86(3)(b) CATCA 2003) included a beneficiary’s interest in the due administration of an estate. Revenue also contended that the taxpayer became beneficially entitled to all of the properties at the same time and on the same date, and that the taxpayer did not satisfy the conditions necessary to claim the exemption.

Revenue disallowed the claim for dwelling house exemption and raised an assessment accordingly.

Basis of appeal

The appeal focused on the taxpayer’s interest in other property and the meaning of “the date of the inheritance” (section 2 CATCA 2003). Both Revenue and the taxpayer submitted that the date of the inheritance in respect of all properties inherited was the date of death of the taxpayer’s father. The “ambiguity arose in relation to the words ‘at the date’ on the basis that it was not clear whether the words related to the start of the day, the time of death or the end of the day.” according to the taxpayer. Revenue’s position is that the words ‘at the date of the inheritance’ (section 86(3)(b) CATCA 2003) means the 24-hour period of the date of death and there was no ambiguity.

Revenue submitted that “as all of the properties formed part of the residue of the estate”, the taxpayer inherited them at the same time being the date of death. It was not possible for the taxpayer to claim she inherited the dwelling-house at one time and the other properties at another time.

The taxpayer submitted that ‘at the same time’ was not relevant as it did not appear in section 86 CATCA 2003.

The purpose of the exemption according to the Revenue submission “was to try and ensure that if a taxpayer inherited a family home in which they were living, the taxpayer would not have to sell the property to pay the CAT” however, the taxpayer stated that “the section was never intended to provide a CAT exemption where the taxpayer inherited other assets sufficient to discharge the CAT arising in respect of the family home.”

Determination

The Tax Appeals Commissioner (“Commissioner”) accepted that ‘the date of the inheritance’ in respect of all properties inherited was the date of death of the taxpayer’s father. Considering the legislation (section 2 (c) CATCA 2003), the definition of ‘the date of inheritance’ does not “import that the date of death and the date a successor becomes beneficially entitled in possession to a benefit, are the same event.” Also, “the definition does not provide that the date of the inheritance and the date upon which a successor becomes beneficially entitled in possession take place on the same date.”

In this case, the date of the inheritance in respect of all residuary legacies, including the family home, is the date of death of the taxpayer’s father.

Turning to the meaning of the expression ‘at the date of the inheritance’ per section 86 (3)(b) CATCA 2003, the Commissioner held that there is no inherent ambiguity. The expression means at any time on the date of the inheritance i.e. at any time during the 24-hour period of the date of death.

The date of the inheritance in relation to all properties inherited by the taxpayer was the date of death (October 2010). The Commissioner noted that at this date, administration of the estate was not complete, nor could it have been. The Commissioner further noted the timeline of events; the net estate post deduction of debts and liabilities was ascertained in March 2011, the grant of probate was extracted in May 2011, and assets in the estate were distributed in August 2011.

After consideration of extensive case law and the statutory requirements of section 86 CATCA 2003 the Commissioner held that on the date of the inheritance (October 2010), the taxpayer qualified for the dwelling house exemption in relation to the family home as she satisfied the conditions for exemption. The taxpayer was not disqualified from claiming the exemption because on the date of inheritance she was not beneficially entitled …. to any interest in any other dwelling-house’ (section 86(3)(b) CATCA 2003). It was not until five months after the date of inheritance (March 2011) that the taxpayer became beneficially entitled to the other properties. The Commissioner determined that the taxpayer was entitled to the exemption and accordingly reduced the Revenue assessment to nil.

The Tax Appeals Commission has been requested to state and sign a case for the opinion of the High Court in respect of this determination, pursuant to the provisions of Chapter 6 of Part 40A of the Taxes Consolidation Act 1997 as amended.