Q&A: I followed your recent articles on capital acquisitions tax (CAT) with interest, but I have a few supplementary questions relating to direct family gifts after the group A limit has already been reached.
Do I understand correctly that a child can still receive €6,000 tax-free every year (ie €3,000 from each parent)?
How is the cost of weddings paid for by the parents treated for CAT purposes?
If the child continues to live with the parents in the family home, does this have CAT implications?
Mr DO’B, email
It’s amazing more people are not aware of this, but it is indeed true. The sum is referred to by Revenue as the “small gift exemption” and it is, for most people, a very practical way of gifting money without having to calculate tax liability under the capital acquisitions tax regime or, indeed, income tax.
The sum has not always been €3,000, but that is its current level. The one restriction is that the exemption applies only to gifts and not to inheritances.
The way it works is that the first €3,000 passed from any person (officially known as the disponer) to any other (the beneficiary or disponee) in any tax year is not taken into account in assessing gift tax liability. It also does not come into the equation when totting up multiple gifts to see whether the relevant capital acquisitions tax threshold has been reached. These days, the tax year and calendar year are one and the same.
So can you “gift” €3,000 a year to each of your children, and your wife can also gift the same sum to each of them – even if you operate out of the same account.
For what it’s worth, you each could gift the same sum to any neighbour or even a complete stranger without them incurring any tax liability. The fact that your child still lives at home has no bearing on the ability to gift this €3,000 sum annually.
As for weddings, strictly, I suppose, it depends on the interpretation of the basis for incurring the cost. If one sees it as “gifting” a child and their partner money for the wedding, strictly speaking it could be interpreted as a gift under the tax regime. However, there is no reason why paying for the wedding of a child cannot simply be deemed a family cost – in much the same way as paying their private school fees or health premiums.
I’m not aware of Revenue ever pursuing a young married couple for capital acquisitions tax over their parents paying for a wedding and I would think it most unlikely they would even consider doing so unless the event was obscenely expensive and seen as a proactive way of avoiding tax liability. I wouldn’t worry on that account.
The one issue that could arise in relation to the small gift exemption is what is called “gift splitting” by the Revenue. This is to stop planned abuse of the gift tax regime. Effectively, if you were to give 20 friends a gift of €3,000 and arranged that they would, in turn, gift your children €3,000, the Revenue would very likely deem the €60,000 as coming from you and would set that €60,000 against your child’s threshold from you – ie category A. It still would not affect the €3,000 given to the child by you and your wife in any given tax year.
Best options for leaving house to an unrelated family
Q: I intend leaving a house (not my private residence) that I own, value €140,000, to a family of seven who are not related to me. I might do this:
(a) now while I am alive or,
(b) leave it to them in my will.
What taxes or charges will apply in each case? Who pays the individual taxes? Which option would work out cheaper? What might a solicitor charge for such a transaction?
They haven’t received anything from me in the past.
Mr DT, email
A range of issues arises here. First, as this is not your principal private residence, if you gift it while alive you will face a tax bill for capital gains. However, if the property is bequeathed in a will, no capital gain applies as a capital gain is deemed to die with the owner of the asset.
At that stage, it becomes a relatively straightforward bequest and the only tax issues that arise are under the capital acquisitions tax regime – otherwise known as inheritance or gift tax. Liability falls on the beneficiary – in this case the family to whom you are leaving the house. If applicable, the tax is currently levied at the rate of 30 per cent.
So will there be a liability? You say there are seven people in the family, that they are not related to you and that the property is worth €140,000. This brings them under category C of the CAT code where the exemption threshold is €16,750. Clearly, if you name only one of the family as the beneficiary, there will be a tax charge, but if the house is passed to each of them, their cumulative exemption is €117,250.
You state they have received nothing from you in the past, which is fine as far as it goes. However, they will still be liable for inheritance tax on the difference between their threshold €117,250 and the property valuation of €140,000 – a tax bill between them of €6,825.
As to solicitor costs, they should not be extravagant, depending how you arrange things. If you are passing the property on under a will, the cost is the cost of drawing up the will, which unless there are other complications should be very reasonable, especially these days.
The family to whom you leave the property may incur separate costs in any legal contract they draw up between themselves to organise the ownership and transfer structures for the house subsequently, but that is an issue for them and there is no obligation on them to do so.
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
