Again we have a few smaller queries that we will round up together in the one piece. This week they are all broadly on the issue of gifts to family, two of them involving the small gift exemption.
I was involved in caring for a relative who died intestate. Under the rules of intestacy, I’m not entitled to any of her estate. However, a relative of mine who will receive an inheritance has very kindly said that they wish to gift an amount of about €20,000 to me to recognise my help.
My question is whether I could use the €3,000 annual gift exemption to reduce the overall amount that would be assessed against the Group C threshold (as in, treat it as a €3,000 gift and a €17,000 gift, meaning that €750 would be subject to tax rather than €3,750)? I would guess not, but wanted to see if this was possible.
Ms A.K.
The €3,000 small gift exemption cannot be used to reduce the taxable value of inheritance. But that is not what is happening here. Your relative died intestate and you are inheriting nothing.
Instead, one of the beneficiaries of the estate is offering to gift you €20,000.
In those circumstances, you are entitled to claim the small gift exemption. That will leave you with a balance of €17,000 which – assuming this person gifting you the money is not an uncle or aunt by blood or a grandparent – will be set against your lifetime category C threshold. This stands at €16,250.
If you have inherited nothing previously under category C or received no other gifts over the value of €3,000 that would also come under this category, you will have a taxable gift of €750 (the amount over the €16,250 threshold having allowed for the small gift exemption) and a tax bill of €250.
If you have previously used some of your category C threshold on large gifts and/or inheritances from people other than close blood relations, the taxable portion of the gift and the tax due will be higher – as much as €5,610 if the entire €17,000 sum after allowing for the small gift exemption is liable to tax.
Can parents both send gift from same account?
Regarding the €3,000 gift allowance from any one individual under the current CAT guidelines, what is your understanding of the application of this rule if a gift is sent from a joint account?
For example, I can receive €3,000 a year from both of my parents. Can this €6,000 a year be transferred to me from a joint account held in both their names in a single transaction? Or do they have to have two separate accounts in their own names, and transfer the €3,000 to me each individually?
Mr I.H.
You are fully entitled to receive €3,000 from each parent. The only issue, down the line, is making sure that there are no grounds for Revenue to challenge whether the money received does in fact come under the small gift exemption or whether some of it should count against your lifetime capital acquisitions tax threshold.
Do I think Revenue would challenge the €6,000 payment from a joint account being claimed under the small gift exemption? No, frankly, I don’t, and they shouldn’t. It is a joint account with the funds jointly owned so it is perfectly reasonable that they would send the sum from that account and, in practical terms, sending it in one payment of €6,000 makes sense.
Now, if the payment of €6,000 came from an account held solely in one parent’s name but purporting to come from both parents, I would expect Revenue to question that.
If you have any doubts personally on this score, there is no real issue with them sending two payments of €3,000 each from the joint account but it adds to the bureaucracy and really should not be necessary.
There are no grounds under which they would be required to send any payment only from accounts held in each of their names individually. They presumably use this joint account routinely for their banking – most mortgage lenders will require such a joint account at least for the purposes of paying the mortgage where a married couple is involved – so it makes perfect sense to use that account for any payment of a small annual gift to you under the terms of the exemption.
Borrowing to gift our son
I have a query regarding giving a gift of money to my son who is planning to buy a house. We are parents and plan to take out a bank loan, the liability belonging to us. It means my wife and I will be paying back to the bank. Not my son.
My question is can we give a gift of money of about €100,000 to my son towards him buying a house? Do we have do anything from our side or does my son?
Mr J.M.
There should be no issue here either for you or for your son. These are in effect two separate transactions. First, you are borrowing money from a bank as a loan which you and your wife will be responsible for paying. That is entirely your right to do and has no implications in terms of tax or otherwise.
The fact that this is the same money you are handing over to your son as a gift to help him buy his home is irrelevant.
And giving your son €100,000 also presents no issues for either you or your wife.
The only issue you two need to consider is affordability. It is one thing the Bank of Mum and Dad offering a helping hand from resources that they have: it is obviously another for them to actively go into debt to offer such assistance. Consider your own financial needs, now and into the future, before taking such a step.
As for your son, he can receive gifts and inheritances up to a total of €335,000 from his parents over his lifetime without having to worry about tax. That threshold might also increase in the coming budget.
This €100,000 will count against his lifetime tax-free threshold. But as it is a gift, the first €6,000 (€3,000 from each of you and your wife) can be discounted under the small gift exemption unless either or both of you have already given him a qualifying gift this year. That leaves €94,000 to set against his threshold, leaving him with €229,000 for future use.
Neither side needs to notify Revenue or anyone else of this deal though having your own paper trail – perhaps even an exchange of emails – might be useful for future reference.
As I always say, if this is when he needs it, and you have the wherewithal to help, then this is the best use of his threshold.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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