Revenue hits back in storm over changes to tax code on family gifts

The Revenue Commissioners have accused tax advise

rs of stirring up unnecessary distress over impending changes in the rules for tax on gifts from parents to their adult children.

It said the proposed tightening of the rules in the Finance Bill was to “protect the exemption from spurious claims”.

Top law firm Arthur Cox had said the hitherto unnoticed provision in the Finance Bill would leave adult children open to a tax bill on such basics as board and lodgings in their own parents' home.

Anne Corrigan, head of private clients in the company's tax division, said such adult children – some in part-time education and others forced to return home by financial circumstance – could be forced to impute a notional value on the cost of bed and board.

She said such an imputed cost would have to consider the market rent their parents could get for letting out the room.

Arthur Cox said other basic family functions such as grandparents minding their grandchildren and help with wedding costs could lead to children facing a tax charge of up to one-third of the notional cost.

Revenue statement

However, Revenue said last night it had been made clear to tax and law firms, as well as to their representative bodies, including the

Law Society

, that there was no question of Revenue attempting to “impute a value to the provision of board and lodging for CAT purposes in the circumstances described or to impute a value to services provided to family members”.

It said the proposed amendments – which would limit the exemption to children under 18 or those under 25 who are in full-time education – were designed “to counter the current abuse of the section”.

The exemption from capital acquisitions tax currently applies to money or “money value” of gifts made by a parent for “support, maintenance or education” of a child where it would be considered “normal expenditure” of a person in the parent’s circumstances and is “reasonable having regard to the financial circumstances” of the parent.

Revenue said: “The concern is that this exemption is being applied by law firms and tax advisors for high wealth individuals to avoid CAT [capital acquisitions tax] on very substantial gifts rather than normal expenditure.

Gifts of houses

“Revenue is aware of cases where, for example, gifts such as cars and houses have been transferred to adult children. When queried by Revenue, practitioners have sought to argue that these gifts constitute gifts made in money or money’s worth for maintenance, support or education.”

It was clear, Revenue said, that the legislation was never intended to apply in this way.

Minister for Finance Michael Noonan has been the target of industry lobbying to tone down the measure and it remains open to him to introduce amendments to the Bill at the upcoming committee stage.

The tightening of the rules does not affect the small gift exemption under which anyone can receive gifts of up to €3,000 in any year from anyone. Adult children could receive up to €6,000 a year from their parents, assuming both parents are still alive.

The threshold on lifetime gifts and inheritances from a parent to a child is also unaffected by the Finance Bill measure. It currently stands at €225,000 and no capital acquisitions tax is payable on cumulative gifts and inheritances from a parent below this figure.

Gifts under the €3,000 small gift exemption are not counted in this figure. Where capital acquisitions tax applies, it is levied at 33 per cent.