Are there annual limits on inheritances or gifts to a child?
Q&A: Dominic Coyle
As long as your annual gift is at or below €3,000, you do not need to declare it
You have stated several times that a child can receive up to €335,000 from a parent without having to worry about CAT. Is there a tax-free limit to the annual amount that can be given to a child?
Would a cash gift from a parent have to be declared as income for a self-employed person, even if it was within the tax-free limit?
Ms TF, Dublin
It’s a popular subject as you say, and not surprisingly so. There are very few areas where someone can receive €335,000 without having any tax bill.
It all really dates back again to the Irish obsession with property, particularly the family home. For many people, the family home is the largest part of the estate they will leave upon their death – at least it has been until now as people were able to afford to buy a home in the first place.
The reason the category A threshold for inheritance tax/capital acquisitions tax (CAT) from a parent to a child is so much higher than the limits for other people is to try to ensure that people receiving the family home, or a share in it, do not have to pay tax on that bequest – or at least minimises any tax bill they might face.
But, turning to your particular point: within that threshold, is there any annual limit? No, there isn’t. You can – and most people do – receive the full amount of any inheritance in one go.
There is, of course, nothing to stop parents making financial or other gifts to their children before they die, should they be in the fortunate position of having the resources to do so. However, Revenue has tightened up the rules considerably in recent years after what the tax authorities clearly considered to be flagrant abuse by well-off parents who were effectively financially supporting adult children who were supposedly financially independent.
You are still allowed to gift up to €3,000 a year without the recipient having to worry about tax. And the amount does not count towards the lifetime €335,000 limit.
This is called the small gift exemption. And it is individualised. That means for instance that, assuming both parents are alive, each could gift the same child €3,000 per year with no tax issues.
If that child had a partner, there would be nothing to stop you gifting each of them €3,000 from each parent. Again, no tax applies as long as you stay within that limit. And you can make such a gift each year, should you choose to.
And does this have to be declared by someone who is self-employed?
Well, the Form 11 that is used by self-employed people to make their tax return does have a one-line entry under section K that asks you to tick a box if you received a gift or an inheritance in the year the return relates to. However, you only need to fill out the separate IT38 form for capital acquisitions tax if the gift exceeds €3,000 – in which case at least part of it is set against your lifetime limit – and that excess brings the total reportable gifts and inheritances you have received from a parent to more than €268,000 – or 80 per cent of the €335,000 threshold.
As long as your annual small gift is at or below €3,000, there is no return required and you do not have to declare the amount, regardless of whether you are self-employed or in PAYE employment.
One final thing, which I am sure you know but just in case. The €335,000 lifetime limit is cumulative and relates to all inheritances (and gifts over the €3,000 limit) from either parent.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice.