Can I backdate small gift exemption for my young children?

Q&A: Dominic Coyle

Small gift exemption: a parent can transfer €3,000 a year to a child tax free. Photograph: Getty

Small gift exemption: a parent can transfer €3,000 a year to a child tax free. Photograph: Getty

 

I have a question on gifting my children (aged eight and 10) €3,000 each year. I have started doing it only in the past couple of years. Am I allowed to backdate and transfer €3,000 for those earlier years before I started?

Mr RK, email

The small gift exemption is one of the best ways of passing on wealth without any tax liability. For those of substantial means, it is admittedly a modest amount of money but, as you appreciate, it can build up over time to become a significant pot for the recipient without any exposure to tax of any kind.

For instance, even starting a couple of years ago, your now eight-year-old child will have accumulated €48,000 by the time they are 21. If both parents are in a position to make such contributions, the savings could come to €96,000.

Given that it is such a valuable tax relief, Revenue is pretty aggressive in ensuring that it is not abused. For example, if they have any suspicion that the child is getting the money only to pass it on elsewhere – such as to ensure a separate relative gets multiples of the €3,000 exemption – it will tax the eventual recipient.

Equally, they will not allow any backdating or forward giving of sums under the exemption – as might be appealing for people looking to save for a home deposit.

From your question, it seems to me that you alone are gifting this money. Assuming you have a partner, there is nothing to stop them also gifting a similar sum to each child each year – effectively doubling the amount they receive. That would quickly make up for any shortfall over the last decade.

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

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