Explaining sudden arrival of €20,000 in my bank account

Q&A: Dominic Coyle

I was given €20,000 by my grandfather about 10 years ago. It was put into my mother’s post office account for safe-keeping. I now have said €20,000 in cash and I wish to lodge it into my bank account. My issue is though, since I will be applying for a mortgage soon – which is what the money was given to me for – I am sure I will be asked where it came from.

I obviously do not want to have to pay CAT on the €20,000. Is there a way that I can lodge the money and have a valid answer when asked where it came from? Could I say I sold my car, I found an extremely rare vase that I sold?! I have €20,000 in cash and need to lodge it ASAP for obvious reasons!

Mr G.H., email.

When it comes to the Revenue, the only valid answer is the truth. Anything else leaves you open to a world of trouble should the Revenue decide to get nosey about it.

Do you have a car? Do you have evidence it was sold and to whom? If you found a valuable vase, you’d likely sell it for that money only through an auction house which, again, is traceable.

I’m not saying Revenue would necessarily check but, if they did . . . It hardly seems worth the hassle.

But, of course, this money is important to you. Putting a deposit for a home together is tough enough, especially now that the Central Bank has tightened up the rules on how much can be lent and what size of deposit must be available.

So you want to put the money into your bank account. The bank may indeed ask about its origins. They're getting very careful given the pressure on them to address money laundering – and tax avoidance. I strongly suggest you tell them exactly what it is – an inheritance from your grandfather.

You are entitled to receive a certain amount free of capital acquisitions tax / inheritance tax from relatives (and even strangers). In your case, the relevant tax- free thresholds for an inheritance from a grandparent to a grandchild are covered under category B.

As it stands now, in 2016, you can receive up to €30,150 from a lineal relative (grandparent, uncle/aunt or sibling) free of tax. This figure covers the €20,000 given to you by your grandfather as long as you have not also received other gifts and/or inheritances from him, other grandparents, or anyone else in category B.

Under aggregation rules, you must add together all inheritances and gifts from people in the relevant category received since December 5th, 1991. So, if you previously received a gift of €10,000 from an aunt and a €10,000 inheritance from another grandparent, then, on the surface of it, this inheritance would put you over the threshold and you would be liable to CAT at 33 per cent on that portion of it that brings your total gifts above the €30,150 level. So (€20,000 + €10,0000 + €10,0000) – €30,150 = €9,850, which is the amount over the threshold and your tax bill would be €3,283.

But, of course, your inheritance was given to you in 2006, you say, even if it was taken care of for you by your mum since then. That means the applicable category B tax-free threshold is the one that was in force at that time. That’s because the date for assessment for tax is the date the gift or inheritance is received – not when you move it subsequently between accounts.

As it happens, back then, the threshold was €47,815, a figure that gives you much more wiggle room in avoiding tax even if you have received other gifts or inheritances.

You clearly don’t give me details of any other inheritances or gifts but, assuming there are none, you have no tax liability on this money.

The only question Revenue might raise is a request for you to show the money is indeed an inheritance from your grandfather, not a gift from your mother. The will should do that. In any case, even if it was a gift from your mother, you’d be a long way short of paying tax on that separate category A threshold, which governs gifts and bequests from parents to children and which is €280,000 at present.

Going forward, you will need to keep a note of the sum and which category it falls under. Subsequent gifts and inheritances from people in the same category will need to be aggregated with this €20,000.

Will my daughter be liable to tax on €50K gift for mortgage?

I am thinking of giving my daughter approx €50,000 towards her mortgage. Will she be liable for tax on this?

Ms L.F., email

With the tightening of the rules on mortgage lending, the “Bank of Mum and Dad” is becoming an increasingly important player for young people in getting a foot on the housing ladder.

And, at least where financial circumstances allow, there’s a lot of sense in it. What’s the point of getting family to wait until you pass before they receive an inheritance when it is now that they have the most pressing need. Later on, while no doubt an inheritance would be welcome, it may well not be as urgently required.

Of course, not everyone has the wherewithal to consider gifts of this nature, and, even if they have, not everyone would want to. A family relationship should never be about money and every case is different.

In tax terms, this gift is considered under the Capital Acquisitions Tax regime. That states that you can give your daughter anything up to €280,000 without her facing a tax bill.

Now that threshold is a “lifetime” one. That means your daughter would need to add together any gifts or inheritances she receives from you or her father since December 5th, 1991 and into the future. Whenever those sums exceed the threshold, tax kicks in.

Tax is currently 33 per cent but that can change. The thresholds also can, and do, change up and down.

However, in relation to this gift – assuming she has not received more than €230,000 to date from either parent – she is fine and has no tax issue.

Finally, there is also a small gift exemption about which I have written many times in this column.

Essentially, your daughter can receive €3,000-a-year gift from you without it being considered for tax under any heading.

She can receive that same sum from as many other people as choose to gift her, again with no tax: the only issue is that it should come from their own resources not via you or anyone else.

In sum, it means that, of this gift from you, just €47,000 counts towards her inheritance/gift tax threshold.

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