Compiled by DOMINIC COYLE
Do I pay gift tax on sum I'm giving to son for his house?
My son is buying a house and I am giving him help with the deposit. Please advise if this is considered a gift and is liable to gift tax. What is the definition of gifts within the meaning of the income tax laws? - Mr B.O’M., email
If you are “gifting” money to your son – to help buy a home or for anything else – it does strictly come under the terms of the capital acquisitions tax regime, better known as gift tax or inheritance tax.
In its information leaflet on the tax, the Revenue defines it as follows: “A gift is taken when a donee becomes beneficially entitled in possession to some property and does not give full consideration for it.”
The important feature of gift tax in Ireland, as against certain other jurisdictions, is that gift tax or inheritance tax is levied on the person receiving the gift not on the person making it, or their estate. There are some limited exemptions to this tax but none that appears to cover the situation you outline.
But there are some reliefs. First up, the initial €3,000 given by any “disponer” – ie like yourself – to any beneficiary in any given year is not taken into account in calculating liability to gift tax.
Thus you can “gift” your son €3,000 towards his deposit this year and do the same the next calendar year without either being liable for gift tax. Similarly, your wife or partner could also gift €3,000 free of gift tax concerns. The same is true of any other family member or even a “stranger” – ie someone outside the family blood line in tax terms.
Together this could go a good way to meeting your aim.
Over and above that exemption threshold, there is also a second “threshold” below which your son would not have any liability under capital acquisitions tax (CAT).
Unlike the initial blanket relief on the first €3,000 gifted in any given year, the level of this CAT threshold varies depending on the relationship between the person gifting the money and the person receiving it.
While the thresholds have been reduced in the past couple of years, a parent is still allowed to gift or bequeath a child up to €250,000 (over the initial €3,000 exemption) before tax becomes an issue.
The point to bear in mind, unlike with the annual €3,000 relief, is that this €250,000 threshold is cumulative. Thus, if your son receives €20,000 from you now, any future inheritance from you or his mother amounting in total to more than €230,000 would bring him over the threshold.
This is still a very valuable relief though. Almost certainly, the financial assistance now – when your son is buying his home and is likely therefore to be at his most strained financially – will be of greater benefit to him than retaining the full tax exemption until he inherits on your death.
For any sum above the threshold, the tax rate – payable by your son as I said earlier – is now 30 per cent, having been raised in the recent budget.
Finally, aside from gifting, there is the possibility of “loaning” your son the money over a period of time and possibly availing of the annual gift tax threshold to counterbalance future repayments on that loan.
Best joint savings options for my girlfriend and I?
My girlfriend and I have decided to open a joint savings account so that we can save for joint ventures (holidays etc). We would probably save about €400 a month. We would like some type of return and easy access. We do not have any other financial links to each other so are eager to get this first step right. What would you recommend? - Com[piMr M.E., email
It’s great in the current climate to see people having the confidence to save for their future. However, as with most things to do with money, the best decisions are ones taken pragmatically, rather than emotionally.
Joint accounts offer shared access and shared responsibility. The latter is why home lenders typically demand that a couple pay their mortgage through a joint account. However, the flip side is that both parties are responsible for the behaviour of the other and while, in your current frame of mind this might not seem a factor of note, it could be so in the future.
Equally, being jointly named on the account could preclude you holding a second such account later to capitalise on a better savings deposit rate in the same institution. For instance, the best paying account of which I am aware at the moment is the EBS family savings account (at 4.1 per cent), but this specifically states that there is a limit of one account for each person.
In the case of the EBS account, with a maximum monthly deposit of €1,000, you are unlikely even with more available cash in the future to need a second account, but the point is still one to consider.
There are other factors to consider when choosing one account over the other. Some allow withdrawals during the savings term, others don’t.
You also need to look at when interest is paid. EBS pays out at maturity (with a minimum savings period of a year). Ulster Bank and AIB both offer 4 per cent at present but where Ulster credits interest in October, AIB does so twice-yearly, in April and October. Rates can change. EBS’s rate is fixed – but only for the first year. In year two, that drops to a less competitive 3.6 per cent.
The headline rate is just one of many factors to consider in ensuring you get the account that best suits you both. In any case, you will need to keep a close eye on new account offerings and interest rate movements on your own account to maximise return.
Bear in mind, all interest rates quoted are before Dirt at 30 per cent is deducted.
This column is a reader service and is not intended to replace professional advice. Please senmd your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to firstname.lastname@example.org. No personal correspondence will be entered into.