Tax treatment of mother’s savings held by children
Q&A: Dominic Coyle
My widowed mother has given myself and three other children savings to hold for her in case it is needed in emergency. The four of us are each holding about €30,000. This was given to us in three tranches of €10,000 over a number of years.
The money is to be used for nursing home accommodation if needed, or for any purpose that our disabled sister might need it. Are there any tax implications for my mother, or for us, regarding this money?
Can we say it is a gift to each of us, our spouse and children? If so, do we need to inform Revenue of this?
Can we hold this money and declare it, in due course when we are dividing her estate? This will be divided between the five of us on her death.
Mr C.C., Dublin
This all really comes down to the manner of the transfer and it is something on which Revenue might well seeks details.
If the money has merely been given to each of you to “mind”, with the intention that it be used by your mother or for costs usually incurred by her on the care of your disabled sister, then it has not been gifted to you and no tax liability should arise as long as the money originally came of taxed income or savings.
In these circumstances, you are simply custodians of your mother’s savings.
However, it would have been much simpler to give each or all of you signing rights on your mother’s accounts and Revenue would be well within its rights to inquire why that had not happened and to query whether the sums were not, in fact, gifts.
If they were gifts, even if made on the implicit or explicit verbal understanding that you would meet any future nursing home costs of your mother, or your sister’s requirements, it would be a different story and the money would count against the lifetime threshold for gifts and inheritances received by you for a parent.
The current threshold for gifts and inheritances from a parent to a child is €225,000, and this figure would include any inheritance or gift already received from your father and any other gifts from your mother.
Once you breach 80 per cent of that threshold (€180,000 ), you are obliged to notify the Revenue, even though you do not incur any liability to tax under the capital acquisitions tax (CAT) regime until you exceed the full threshold.
The first €3,000 of any gift received in a given year is exempt from consideration under CAT rules as it falls under the “small gift exemption” rules. Thus, if the money given to you by your mother in three €10,000 tranches was considered a gift by Revenue, you would only have to offset €21,000 of it against your CAT threshold.
Can you say it is a gift to each of you, your spouse and children and, if so, do you need to inform Revenue? If it is not a gift but simply a case of the children managing their mother’s savings, it would be counterproductive to say it was a gift.
If it was a gift, could you retrospectively claim it was not simply a gift to you but also to your spouses and children? No, you can’t and it is something Revenue is alert to. Revenue would consider any such course as a clear abuse of the small gift exemption and would tax the money as if it had all been given to you which, in effect, it has.
Even if it was a gift, you don’t need to notify Revenue until you hit the 80 per cent threshold mentioned above, but you do need to keep records on this as it is easy to forget previous gifts and inheritances and there are also distinct and different thresholds for gifts and inheritances to you from different categories of people – parents, other linear relations and “strangers”, including in-laws.
Can you hold this money and declare it, in due course when you are dividing her estate which would be divided between the five of you on her death.
Whether it is a gift or simply a case of you and your siblings holding and managing your mother’s savings, it will need to be factored in eventually when you are dividing her estate after she passes.
As a gift, €21,000 of it will be offset against the CAT thresholds of the four siblings in receipt of the money, but not the fifth, disabled sibling who did not receive anything. As savings held by you for your mother, the case will form part of the estate and will go into the pot for allocation among all five beneficiaries.
If, as part of that exercise, any of you has received more than €225,000 in aggregate from a parent since December 1991, you will have a liability to CAT, currently levied at 33 per cent.
Can you simply choose to hold on to it and determine whether to declare it as a gift or otherwise on your mother’s death? No, but it will make little difference in practice.
Getting the sums right on Balmoral As a holder of some of Fyffes shares, I enjoyed reading your article of December 9th. On the question of the value of the Balmoral (ex-Blackrock International Land ) shares, you are out by a decimal point in calculating their current value, they are quoted at 0.014 cent in recent times as per their web page (grey market estimate).
On the basis of this price, and Ms. K. O’G’s query, could she attempt to sell her Balmoral shares and then use the loss to offset some of her tax liability?
Mr D.M., Cork
The question related to the calculation of the base cost for Fyffes shares and those of Total Produce and Blackrock (now Balmoral) held by Ms K.O’G as a result of an original purchase of Fyffes shares in 2002.
Having worked out the revised base cost for the three shareholdings, I noted that the reader had made a profit on the Fyffes and Total Produce shares, which she had sold, that would trigger a capital gains tax liability.
Mr D.M. is correct in stating that the grey market price for Balmoral, in which Ms K.O’G still holds stock, is 0.014 cent per share and not 14 cent as I stated.
Given Balmoral/Blackrock had a base cost of 28 cents a share (revised further to 29.372 cent a share under indexation rules as the Fyffes stock was bought before 2003), the reader is clearly out of pocket on that element of her investment.
However, she will not be able to use this “loss” to offset some of the capital gains tax owing on the other shares even if she were to sell the Balmoral stock now. Losses can only be offset against gains made in the same tax year or in subsequent tax years if not fully accounted for by offset in the year of transaction. You cannot use losses to offset against gains from previous years.
As the reader had sold her Total Produce and Fyffes shares in 2013, she could not offset losses actually incurred by the sale of Balmoral stock in 2014 or later against the 2013 capital gains arising.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice.