Can I give gifts to children as shares equivalent to cash?

Q&A:Could I gift €3,000 a year to each of my children by allocating this amount to them within my stock market investment portfolio?

No immediate transfer would take place but the children would be informed in writing that they could access the cumulative gifts at any time. I appreciate that no CAT should be incurred but, obviously, I might incur CGT when realising cash within the portfolio in order to pay over the gift once requested by a child.

If instead of giving cash, I simply transferred shares worth €3,000 to a child, would I be liable to CGT on the shares transferred?

Mr D.F. email

The small gift exemption – the €3,000 amount that can be given annually without incurring capital acquisitions tax (CAT) – is a provision designed to ensure that people receiving relatively small sums do not have to worry about taxation. It is applicable both to cash amounts or to other assets of that value or less.

However, I think you will struggle to persuade Revenue that you are making such a gift from your share portfolio if the assets remain in your name.

You are effectively promising to pay a sum at some time in the future by liquidating part of your portfolio at that stage. Quite apart from anything else, as recent experience with Irish bank shares, that is effectively a conditional offer, regardless of the current status of your portfolio.

On that basis, I have no doubt, the Revenue would assess the gift as being its value at the time of the eventual transfer.

You are right in your presumption that selling shares to raise money to meet any such commitments to your children would also trigger a capital gains tax (CGT) issue. You would face CGT on any gain in the value of your shareholding in excess of your annual CGT exemption limit of €1,270.

Transferring shares to the current value of €3,000 into the name of your children would certainly be a way of getting around any concern that Revenue would have about the fact that a gift has taken place. However, it would not address the capital gains issue. You would still be liable for any capital again accruing during the period of your ownership of the shares being transferred.

Without getting into it in detail here, you will be able to mitigate capital gains for the effect of inflation through an indexation multiple but this is relevant only if you owned the shares being transferred before 2003.

The applicable rates for both gift tax (CAT) and capital gains tax are currently 30 per cent.

Gift tax versus capital gains tax

In relation to a recent query about gifting a property to a large family recently, you mentioned capital gains tax. I didn’t realise that a gift incurs capital gains tax as the house will not be sold to the family concern and I will not be making any profit or gains on it.

On the matters raised by your response to that query, is there a small gift exemption of €3,000 per person as well as the €16,750 per person making a total of €19,750 each?

Does stamp duty arise if given while alive? All in all, it seems that leaving it in a will would be the more sensible option?

Mr D.T., email

Your initial query on gift tax has sparked a series of letters from people on different aspects of the legislation governing the tax. Certainly the small gift exemption has attracted a lot on interest.

In relation to the specifics of your questions, there are in effect two transactions going on here if you transfer this property to the family involved. First there is the disposal by you of an investment property – as you stated originally that this was not your family home, or principal private residence to use the Revenue jargon.

Whether you are formally selling it or just gifting it, the fact remains that you acquired the property at Value X and that, assuming it was bought far enough ahead of the property crash, it will now be worth more than that.

Under tax law relating to investment property, disposal triggers a capital gains tax assessment point. The fact that you are choosing to gift the property will not alter this. Of course, if the property is willed after your death, CGT will not arise as any gain in the property value is deemed to have been addressed with your passing.

On the second matter you mention, it is true that the small gift exemption applies before addressing the individual category aggregated exemption of €16,750 which applies to gift and bequests between strangers.

So you are right in presuming that the each member of this family to whom you are considering gifting the property could receive a gift or bequest from you worth up to €19,750 before capital acquisitions tax (CAT) kicks in – assuming they have received no other gifts or bequests from Category C “strangers” – ie people with whom you do not have a close blood relationship.

Finally, you are correct that a transfer of property during your lifetime is likely to trigger a liability to stamp duty. The stamp duty regime was recently amended to simplify it and duty on property transfers/sales is not 1 per cent if the value of the property is below € 1 million.

Consanguinity relief, which applied to transfers within families, has also been abolished.

Naturally, stamp duty will not arise on any transfer after your death.

As you say, all in all, it does appear that gifting this property to the family concerned will be less complicated through your will rather than in your lifetime.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.