How would gift tax affect money I give my son?

Q&A:The threshold for gift tax for 2007 was €496,824. The threshold for gift tax for 2012 is €225,000.

Suppose I gave a gift of €300,000 to a son in 2007 and further gift in 2012 of another €300,000.

There are no other gifts. What would be the gift tax charge be?

Mr MS, Dublin

The short answer is that your son will be liable to tax on all of the second gift.

You are quite correct that the gift tax (and inheritance tax) thresholds have been reduced dramatically in the past few years. Having risen exponentially through the Celtic Tiger years (from 1999) to a figure as high as €542,544, they are now less than half that, a level that is lower even than the relevant threshold in 1995.

From your perspective – and more importantly, that of your son – the relevant issue is the threshold in place at the time the gift is made. Back in 2007, when you gifted your son €300,000, it was well within the threshold of €496,824 then applying to such transactions. You state that your son had received no other gifts that might need to be taken into account in assessing liability to capital acquisitions tax. As a result, no tax was payable.

Note that in assessing liability, you need to examine not just gifts but also any inheritance your son might have received from a parent.

Moving forward to last year, you speculate about the impact of a further gift of €300,000 to your son. The threshold in 2012 for gift/inheritance tax from a parent to a child was €225,000. That remains the position. The gift to your son last year brings the cumulative total of gifts from you to him to €600,000 – well in excess of the €225,000 limit. In fact, all €300,000 of the gift is above the current limit and therefore almost the entire gift is liable to capital acquisitions tax which last year stood at 30 per cent. In your son’s case, this would amount to a tax liability for €89,100.

Why is “almost” the full gift liable to tax, and not all of it? You are entitled to receive €3,000 each year as a gift from any particular individual without it being counted towards the threshold.

For what it’s worth, if the gift were to take place in the current tax year, the tax would be at 33 per cent as the rate was raised in the last budget.

The final thing to observe is that the figures you quote are purely for the Category A threshold – that relevant to a parent passing a gift or bequest to a child. The figures for the other two categories – B, which is relevant to other linear relations, and C, which applies to all others, including in-laws – have also been sharply reduced.

They now stand at €30,150 and €15,075 respectively, compared to the level of €49,682 and €24, 841 which applied in 2007.

Must probate be carried out in all deaths?

Can you tell me what probate is? When one passes away, does one have to have probate?

Ms AB, Dublin

It is somewhat ironic that in all the years I have been writing this column, I do not recall coming across this question. It arrives now just as I am organising probate myself for the first time.

Probate is the legal process of validating a will before it is executed ( ie, before a deceased person’s estate can be distributed in accordance with their wishes).

Apart from “proving” the will, the process involves ensuring that all legal, financial and tax affairs of the deceased are in order so that the executor or administrator can “execute” the will.

You, or if the estate is in any way complex, a solicitor on your behalf, applies to the probate office (a division of the High Court) for a grant of probate/representation.

You don’t need probate if there are no assets, if all assets are owned jointly and pass to the joint owner, or, sometimes, if there are only minimal assets in, for instance, bank accounts.

* 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.