Good Samaritan could create gift tax problem
Q&A: I have a friend who through no fault of his own is in a stressful mortgage situation. My wife and I are thinking of clearing a chunk of his mortgage for him. It could be us if the cards if life fell differently.
Your query response a few weeks ago re gift tax has raised the issue of whether we will be creating another problem. Will my friend be liable for gift tax on any help we give? This would seem severe in the situation where he is at risk of losing his home. Is there any way of avoiding this problem?
Mr GK, Dublin
Your instincts are commendable but, as you now realise, they could present problems for the recipient of your generosity. That aside, I would also counsel that you make no move without first sounding out the attitude of your neighbour. The sensitivity of people on financial matters, especially their own financial troubles, can be acute.
Should you proceed in the manner you suggest, you would indeed likely run into problems with gift tax. You are free to gift €3,000 to your friend this year and each successive year without having to worry about gift tax. Your wife can also gift the same amount to him each year. If he has a partner, spouse, you each can gift the same amount to them.
After that annual exemption of €6,000-€12,000 between you to this homeowner and any partner, gift tax comes into the picture.
Assuming there is no blood relationship between you, this friend is considered a Category C “stranger” for the purposes of gift tax/capital acquisitions tax. On that basis, there is a limit of €16,750 he can receive (over and above the €3,000 per person annual small gift exemption) before finding himself liable to gift tax at 30 per cent.
There are certainly ways of sidestepping this, but they are more complicated. You might need to “gift” any amount above the €3,000 a year as a loan. Revenue would want to be reassured that it was indeed a loan and not a gift, but it could provide your friend with the necessary space to get his affairs in order.
A third option, more complicated again, would be to purchase part ownership in the property, but this would have attendant costs and, in any case, would be a very sensitive matter.
Is now the time for a punt on shares in Irish Life?
Would now be a good time to buy Irish Life shares?
Mr JS, email
It might be . . . if they were available. Irish Life, the life insurance arm of Irish Life Permanent, has been spun off and acquired by the Government. It may be that, at some point in the future, the State will refloat the business or, alternatively, sell it on to an industry buyer.