Once again, we have a few smaller questions that we will summarize in one article. This week, they all largely revolve around the topic of gifts to the family, two of which concern the exception for small gifts.
I have been caring for a relative who died without leaving a will. According to the rules of succession, I have no claim to her estate. However, a relative of mine who is receiving an inheritance has very kindly told me that she would like to give me a sum of around €20,000 as a token of appreciation for my help.
My question is, can I use the €3,000 annual gift allowance to reduce the total amount that counts towards the Group C threshold (so it can be treated as a gift worth €3,000 and a gift worth €17,000, so that €750 is taxed and not €3,750)? I suspect this is not the case, but I wanted to see if it is possible.
Mrs AK
The gift allowance of €3,000 cannot be used to reduce the taxable value of an inheritance. But that is not the case here. Your relative died without a will and you inherit nothing.
Instead, one of the heirs offers to give you 20,000 euros.
In these circumstances, you are entitled to the small gift allowance. This leaves you with a credit of €17,000, which – assuming the person giving you the money is not a biological uncle or aunt or grandparent – will count towards your lifetime Category C allowance of €16,250.
If you have not previously inherited anything under category C or received any other gifts over €3,000 that would also fall under this category, you will have a taxable gift of €750 (the amount above the €16,250 threshold, taking into account the small gift exemption) and a tax bill of €250.
If you have previously used part of your Category C allowance for large gifts and/or inheritances from people other than close blood relatives, the taxable part of the gift and the tax due will be higher – up to €5,610 if the entire amount of €17,000 is taxable after taking into account the allowance for small gifts.
Can both parents send gifts from the same account?
Regarding the €3,000 gift allowance for individuals under the current CAT guidelines, how do you understand the application of this rule when a gift is sent from a joint account?
For example, I can receive 3,000 euros per year from both parents. Can these 6,000 euros per year be transferred to me in a single transaction from a joint account in both names? Or do both parents have to have two separate accounts in their names and transfer the 3,000 euros to me separately?
Mr IH
You are fully entitled to €3,000 from each parent. The only problem is to make sure that the tax office has no reason to contest whether the money received actually falls within the small gift allowance or whether some of it should be counted against your lifetime capital acquisitions tax allowance.
Do I think the tax authorities would challenge a payment of €6,000 from a joint account claimed under the small gift exemption? No, to be honest, I don’t think so, and they shouldn’t. It’s a joint account where the funds are jointly owned, so it’s perfectly reasonable for them to transfer the amount from that account, and in practice it makes sense to transfer it in one payment of €6,000.
If the payment of €6,000 came from an account that was in the name of one parent only, but was supposedly from both parents, I would expect the tax office to question this.
If you have any personal doubts about this, it is not a problem if you transfer two payments of 3,000 euros each from the joint account. However, this increases the bureaucratic burden and should not really be necessary.
There’s no reason why they would have to send payments only from accounts in their respective names. They probably use this joint account routinely for their banking – most mortgage lenders require such a joint account at least for paying the mortgage if they’re a married couple – so it makes perfect sense for them to use this account to pay a small annual gift to you under the exemption.
Borrowing as a gift for our son
I have a question about giving money as a gift to my son who wants to buy a house. We are parents and we want to take out a bank loan, with the debt being ours. This means that my wife and I will have to pay back the loan to the bank. Not my son.
My question is: Can we give my son around €100,000 to buy a house? Do we have to do something for it or does my son have to do something for it?
Mr JM
There should be no problem here for you or your son. In fact, these are two different transactions. First, you are borrowing money from a bank as a loan, which you and your wife must repay. This is your right and has no tax or other implications.
It doesn’t matter whether it’s the same amount that you give your son to buy a house.
Giving 100,000 euros to your son is also no problem for you and your wife.
The only issue you both need to consider is ability to pay. It’s one thing if mom and dad’s bank offers a helping hand from the funds they have. It’s another thing if they actively go into debt to offer such help. Consider your own financial needs, now and in the future, before taking such a step.
Your son, on the other hand, can receive gifts and inheritances from his parents over the course of his life up to a total of 335,000 euros without having to worry about tax. This allowance could even increase in the next budget.
That €100,000 will count towards his lifetime tax-free allowance. However, because it is a gift, the first €6,000 (€3,000 each from you and your wife) can be deducted under the small gift exemption, unless one or both of you has already given him a qualifying gift this year. That leaves €94,000 to count towards his allowance, leaving him with €229,000 for future use.
Neither side is required to inform Revenue or anyone else about this deal, but it may be useful to have your own documentation for the future – perhaps even an email exchange.
I always say: If he needs it at that moment and you have the resources to help him, then that is the best use of his threshold.
Please send your questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to [email protected] with a contact telephone number. This column is a reader service and is not intended to replace professional advice
