604 Disposals of principal private residence

Summary

This section exempts from capital gains tax the gain made by an individual on the disposal of his/her dwelling house together with land occupied as its gardens or grounds up to an area (exclusive of the site of the residence) of one acre. For full relief to apply, the dwelling house must have been occupied by the individual as his/her principal private residence throughout his/her period of ownership of the house. Where the house is not so occupied during the whole period of ownership, only the proportion of the gain applicable to the period of occupation is exempt. The continuity of owner-occupation is not interrupted by periods spent in employment abroad or by periods of absence not exceeding in the aggregate 4 years because of the situation of an individual’s place of employment or an obligation of the individual’s employment to reside elsewhere. Any such periods are treated as periods of occupation of the principal private residence. In addition, the last 12 months of the period of ownership is, in any event, treated as a period of occupation of the principal private residence.

Relief is not given for any part of the gain which is applicable to a part of a house which is used exclusively for the purposes of a trade, business or profession. Relief is also not given for any part of the gain which is applicable to “development land value”. In any such case, the relief would be determined only by reference to the gain which would have arisen if the house had been bought and sold for its value solely as a residence. Finally, an individual cannot have more than one principal private residence at any one time.

Details

Period of ownership

(1) The term “period of ownership” is not defined as such. Thus, it must take its normal meaning, namely, the period for which the individual has owned the property concerned.

However, in cases where an individual has had different interests in the property at different times, the period of ownership is treated as starting from the time of the first acquisition in respect of which the individual incurred expenditure on the property which would be an allowable deduction in computing chargeable gains.

In addition, periods of ownership before 6 April, 1974 are not reckoned in determining whether the house has been the only or main residence throughout the whole period of ownership (subsection (3)), in apportioning the gain where the periods of occupation as a residence do not cover the whole period of ownership (subsection (4)), and in treating certain periods of absence as periods of occupation (subsection (5)).

Application

(2) The section applies to a gain accruing to an individual on the disposal of, or of an interest in, a dwelling house which has been occupied by the individual as his/her only or main residence. It also applies to the disposal of, or of an interest in, land occupied as the gardens or grounds of the house up to an area of one acre (excluding the site of the house). If such land is to be exempted, however, it must be disposed of not later than the date of disposal of the residence. Where the land exceeds an acre, the part of the land to be included with the residence for the purposes of the relief is that which would be regarded as most suitable for occupation with the residence.

It should be noted that the section applies to a gain on the disposal of an interest in property as well as to a gain on the disposal of freehold property. Thus, the section applies to a gain arising where a person who occupies a house as his/ her main residence under a lease obtained at a premium assigns the lease or grants a sub-lease.

Full relief

(3) Any gain on the disposal by an individual of his/her dwelling house is exempt from capital gains tax if the property has been occupied as his/her only or main residence throughout his/her period of ownership. The last 12 months of ownership is, in any event, to be regarded as a period of occupation. This allows for the case where the owner-occupier puts his/her house for sale and moves without being able to find a buyer immediately.

Partial relief

(4) Where the dwelling house was not occupied by the individual as his/her only or main residence throughout the period of ownership, a proportion of the gain on the disposal is exempt. This proportion is the same proportion as the length of the period of owner-occupation (inclusive, in any event, of the last 12 months of ownership) bears to the length of the period of ownership. The balance of the gain is chargeable in the normal manner

Certain periods of absence treated as periods of occupation

(5)(a) A “period of absence” is a period during which the dwelling house was not the individual’s only or main residence and throughout which the individual had no residence or main residence eligible for the relief.

(5)(b) Certain periods of absence during which the individual was prevented from residing in the house are treated as periods of owner-occupation if, both before and after those periods, the house was occupied by the individual as his/her only or main residence. These are —

• any period throughout which the individual worked in an employment or office all the duties of which were performed outside the State, and
• any period not exceeding 4 years, or any periods which together do not exceed 4 years, throughout which, because of the individual’s place of work or a condition of employment, the individual had to reside elsewhere. The condition of employment must have been reasonably imposed to secure the effective performance by the individual of the employee’s duties.

House used for business purposes

(6) Where part of a house is used exclusively for the purposes of a trade, business or profession, the gain on the disposal must be apportioned between the respective parts of the house. Only the part of the gain which is not attributable to the part of the house used for trade, business or profession purposes qualifies for relief. The part of the gain attributable to the part of the house used for such purposes is chargeable in the normal manner.

It is to be noted that apportionment of the gain is only necessary where part of the house is used exclusively for trade, business or professional purposes. If part of the house is being used for such purposes but not exclusively so, apportionment does not arise. For example, if a room was used as an office during the day and as a study room for children at night, apportionment would not be required.

Change in use of house

(7) Where there are changes made as regards the use or structure of the house during the period of ownership, the relief is adjusted in such manner as the individual concerned and the inspector may agree. If there is no agreement, there is a right of appeal against the assessment to the Appeal Commissioners who may give such relief as they consider just and reasonable. Examples of changes of use or to the structure would include the case of an owner who, after occupying the whole house, converted it into flats, lived in one of them and let the rest, and the case where different parts of the house had been interchanged for residential and business use at different times.

One main residence only

(8) For the purposes of the relief, an individual cannot have more than one main residence for any one period. If the individual has more than one residence, he/ she, after giving notice to the inspector by 5 April, 1976 or within 2 years of the beginning of the period, may come to an agreement with the inspector as to which residence is to be treated as the individual’s main residence for the period in question. In the absence of agreement between the inspector and the individual, the inspector may make a determination as regards the whole or part of the period in question.

A person aggrieved by a determination made under this section may appeal the determination by notice in writing to the Appeal Commissioners. An appeal must be made within 30 days after the date of the notice of the determination. The Appeal Commissioners will hear and determine an appeal in the manner provided for in Part 40A of the Act.

Married persons and Civil Partners

(9) A married couple or civil partners living together may only have one main residence for both at any one time. If there is more than one residence, a notice under subsection (8)(a) must be made by both. If a house is transferred from one spouse/civil partner to the other, whether by sale, gift or death, the period of ownership is to date back to the time of acquisition by the one who first acquired the house even if that time was before their marriage or the registration of their civil partnership. Where each spouse/civil partner owns a residence, a notice of determination by the inspector under subsection (8)(b) as to which residence is to be treated as the main residence for the purposes of the relief must be given to each spouse/civil partner and either spouse/civil partner has the right of appeal against the determination.

Settled property

(10) Relief is also available on the disposal by a trustee of a dwelling house where during the period of ownership of the trustee the house had been occupied as a sole or main residence by the individual entitled to occupy it under the terms of the settlement. Where it is a question of deciding which (if more than one) residence is the main residence, any notice to be given under subsection (8)(a) must be given jointly by the trustee and the individual.

Dependent relatives

(11)(a) A “dependent relative” is a relative of the individual or of the individual’s spouse or civil partner who is incapacitated by old age or infirmity from maintaining himself or herself, or the widowed father or widowed mother of the individual or of the individual’s spouse whether or not so incapacitated.

(11)(b) Relief is available in respect of a gain accruing to an individual on the disposal of a house or part of a house which during the individual’s period of ownership has been the sole residence of a dependent relative. For the relief to apply, the house must have been provided gratuitously for the dependent relative (that is, rent-free and without any other consideration). Accordingly, any period during which the relative paid a rent to the individual, or occupied the house in consideration of performing services for the individual, does not count as a qualifying period of residence.

(11)(c) Relief is also available where all other conditions of the section have been met and the residence concerned has been the sole residence owned by one civil partner and a residence owned by the other civil partner.

The relief to be given, on a claim being made by the individual, is such relief as would be given in respect of the house and grounds if the house or the relevant part of it had been the individual’s only or main residence during the period of residence by the dependent relative. This relief does not affect the relief available to the individual in respect of his/her own main residence and is additional to any relief the individual could claim in respect of the house in question in respect of any period during which the individual lived in the house (as his/her only or main residence) before its occupation by the dependent relative. In the case of any individual, only one house can qualify for this additional relief at any one time.

Development land

(12)(a) Necessary definitions for the operation of the subsection are set out.

“base date” is the date of the original acquisition of the asset by the person disposing of it but, if the asset was acquired by that person before 6 April, 1974, the base date is 6 April, 1974.

“base value” is the cost price of the asset on the base date, excluding any incidental cost of acquisition (solicitor’s and auctioneer’s fees, stamp duty, etc), or its market value on 6 April, 1974 if the base date is that date.

“current use value” has the meaning set out in section 648, of which is the interpretation section for the provisions dealing with the capital gains tax treatment of development land. Broadly, it is the market value calculated on the basis that the property had no development potential. In the context of this section, it means the value of a house and its grounds on the basis that the property could be sold for residential occupation only and without the possibility of development for other purposes.

“development land” is also defined by reference to section 648. In general, land (including buildings) is development land if the proceeds of the sale (or market value) exceed the current use value at date of disposal.

(12)(b) Relief under the section is restricted where —

• an individual makes a disposal of development land, and
• any gain on the disposal would (but for subsection (12)) have attracted relief under the section as being a gain on the disposal of the individual’s only or main residence (within subsection (2)) or a residence occupied rent-free by a dependent relative (within subsection (11)).

In any such case, relief is to be given only to the extent that it would be given if the amount to be taxed were determined under the normal rules governing disposals of development land but on the basis of the following exclusions —

• the excess of the base value of the asset over the current use value of the asset on the base date (normally, there will be no development value at a base date except where the asset being disposed of had development value when it was originally acquired (or, if it had been held on 6 April, 1974, at that date);
• the excess of the consideration for the disposal over the current use value of the asset on the date of disposal;
• where the asset was acquired after 6 April, 1974, the appropriate proportion of the incidental costs of acquisition that would have been referable to the excess referred to in subparagraph (I); and
• the appropriate proportion of the incidental costs of disposal that would have been referable to the excess referred to in subparagraph (II).

In effect, therefore, in any such case, the gain on the disposal is first calculated in the normal manner as a development land gain (see Chapter 2 of Part 22). This requires the application of special rules regarding indexation of base cost and of expenses of acquisition and non-indexation of enhancement expenditure. A notional computation is then made of the gain which would have arisen if the asset had both been acquired and disposed of for its current use value only (that is, without development value) and, where costs and expenses are deductible in calculating a gain, if the proportion of such costs and expenses referable to the development value had been excluded. The notional gain so computed is relievable under the section and is deducted from the actual chargeable gain arising on the disposal. The balance of the gain is chargeable as a development land gain.

(12)(c) If the total consideration accruing to the individual in the year of assessment from all disposals of assets which are development land and would (apart from subsection (12)) qualify for relief under section 604 does not exceed €19,050, the restriction of the relief provided for in paragraph (b) does not apply.

Apportionments

(13) Any necessary apportionments of sale price may be made for the purposes of applying the provisions of the section as, for example, where a house is used partly as a residence and partly for business purposes. By virtue of section 544(5), apportionments are to be made by such method as appears to be just and reasonable.

Acquisition made for profit

(14) The relief does not apply where the house was acquired wholly or mainly for the purposes of realising a gain on its disposal, nor does it apply to any part of the gain on the disposal which is attributable to enhancement expenditure incurred wholly or mainly for the purposes of realising a gain on the disposal of the house.

Disposal by way of a lottery or game with prizes

Relief under the section is restricted where —

• an individual disposes of an interest in a dwelling house and/or its grounds by way of a lottery or game with prizes;
• the proceeds of that lottery or game exceed the market value of the property on the date of the disposal; and
• any gain on the disposal would (but for subsection (15)) have attracted relief under the section as being a gain on the disposal of the individual’s only or main residence (within subsection (2)) or a residence occupied rent-free by a dependent relative (within subsection (11)).

In any such case, the consideration for the purposes of computing any chargeable gain is the proceeds of that lottery or game, or where there are multiple prizes, the proceeds referable to the dwelling house and/or its grounds, and the maximum chargeable gain to which principal private residence relief may apply is that computed by reference to the market value of the property at the date of disposal and not by reference to the full proceeds arising on foot of such lottery or game. The allowable costs and expenses of sale are similarly apportioned.

Therefore, in any such case, the gain on the disposal is first calculated in the normal manner. A notional computation is then made of the gain which would have arisen if the asset had been disposed of for its market value only and, where costs and expenses are deductible in calculating a gain, if only the proportion of such costs and expenses referable to the market value had been allowed. The notional gain so computed is relievable under the section and is deducted from the actual chargeable gain arising on the disposal. The balance of the gain is chargeable as normal.

Relevant Date: Finance Act 2021