Q&A Dominic Coyle
Assessing the best PRSA options
Your reply to an enquiry recently has caused me some anxiety. I did well out of the sale of my home in 2006 and thus was in a position to assist my three children to purchase starter homes.
To take one as an example, the amount received was €400,000 and as this was under the then threshold of €450,000 odd, no tax was payable.
However, under the cumulative rule, should I be in a position to leave this son say €100,000 when I die, he would be liable to pay tax of 33 per cent of €100,000.
That seems clear enough, but is the tax cumulative as well°? Could my son now be taxed now on the basis of the total amount received - i.e. the original €400,000 and the inheritance of €100,000, giving him a total gift/inheritance of €500,000? Allowing for the current threshold of €225,000, could he have a tax liability of 33 per cent on the balance of €275,000, producing a tax bill of €91,667 - €58,334 more than if he is taxed simply on the new inheritance?
This would be retrospection with a vengeance. A decision in 206 under different tax rules would be formalised under “new” tax rules.
Mr G.L., Dublin
You need not worry. While this Government has been the first to break the previously inviolable rule against retrospection in tax affairs with their raid on pension funds, there is no such issue in relation to capital acquisitions tax governing gifts and inheritances.
The money you gifted your son (and the other children) back in 2006 was correctly treated under the parameters of the CAT tax at that time, and your children had no liability.
The only impact of the cumulative nature of CAT is that the €400,000 taken then will be taken into account in determining the tax status of any future gift from a parent or inheritance. This, having previously received a €400,000 gift, any sum over the €3,000 limit for a small gift exemption will be liable to capital acquisitions tax at 33 per cent.
However, there is no provision to go back and retrospectively tax a previous gift which was exempt under the rules pertaining at that time. So, €97,000 of your hypothetical €100,000 inheritance to your son would be liable to taxation at the current prevailing rate – 33 per cent – giving a tax liability of just over €32,000.
This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to firstname.lastname@example.org