Q&A: Can I receive financial gifts while on welfare?

Dominic Coyle answers your personal finance questions

If the gift is in straight cash, you run the risk of losing your welfare entitlement

If the gift is in straight cash, you run the risk of losing your welfare entitlement

 

I am in receipt of the one-parent family payment. I am in the final year of my master’s studies and I am entitled to payment for a further 12 months or so. I am wondering if I am entitled to receive financial gifts from my parents while on a welfare payment? I am over 25.

Ms CC, email

The one-parent family payment is a means-tested payment. That means any cash income you receive will be taken into account in determining your eligibility for the one-parent family payment.

However, if the gift is by way of savings or investment, a different regime applies.

Essentially, the first €20,000 of any savings are deemed to be delivering zero weekly income. The next €10,000 of savings is considered to be yielding weekly income of €1 per €1,000. That jumps to €2 per €1,000 for the next €10,000 and €4 per €1,000 for anything above that figure.

So, for you, the important thing is how your family makes the gifts. If it is straight cash, you run the risk of losing your entitlement; however, if the gift is presented by way of savings or an investment, the rules above apply and you stand a good chance of retaining your one-parent family payment.

Do I have to keep records of all gifts over €3,000?

As I understand the current law on capital acquisition tax (or inheritance tax) it is a voluntary disclosure tax and all gifts to children, grandchildren and third parties are added to our estates, on death, for the purposes of capital acquisitions tax.

For those of us in our 70s who may be planning to bequeath our wealth to our children and grandchildren, it means that we are supposed to keep a record of all gifts greater than €3,000 in a single year without time limit. In theory this means our records could cover more than 50 years. That is an impossible task.

There used to be a “gifts inter vivos” rule which limited gifts made only in the seven years prior to death as being part of the total assets subject to CAT on death. Am I correct?

What are the chances of the Minister for Finance reintroducing a similar time limit in the next budget? After all if we make gifts to children and grandchildren more than five or even 10 years prior to death we are hardly distributing our assets in anticipation of an early demise from this earth!

Mr D McC, Dublin

You are correct that capital acquisitions tax is a matter of self-assessment, or voluntary disclosure, but I think you are mixing up two distinct inheritance tax regimes. In the UK, inheritance falls on the estate rather than the beneficiary and, as you say, relief on gifts that have been given in the recent past is clawed back.

In Ireland, it is the beneficiary who has liability for capital acquisitions tax. Thus, there is no question of you having to keep records of those to whom you have gifted money; rather it is the responsibility of those in receipt of that money to ensure they keep an accurate record and, if necessary, regularise their situation with the Revenue.

In Ireland there are three separate categories: gifts from parents; gifts from linear relations, such as grandparents or uncles; and gifts from strangers (any other person, including in-laws, friends etc). They are known as Category A, B and C respectively.

Each has its own financial threshold and, lest you worry about it, it is not a case of recording gifts going back to the start of time. The current Revenue rules state that you must aggregate (ie tot up) any gifts or inheritances within each category since December 5th, 1991.

It’s a long time, I’ll grant you, but not 50 years or more.

As part of that, beneficiaries are supposed to notify Revenue when they exceed 80 per cent of any of the three thresholds. Obviously they are not liable to tax at that stage, but Revenue likes to keep tabs on these things.

The seven-year rule to which you refer applies in the UK but not in Ireland. However, the €3,000 sum you mention is the small-gift exemption that you can give to anyone – family member or otherwise – in any given tax year without it being taken into account for the purposes of capital acquisitions tax in Ireland.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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