Turning a parental loan into a gift

A parent is considering gifting me the money needed for a home. I have never received more than €3,000 in a year so am eligible for the full €310,000 lifetime limit.

If this is gifted to me along with a loan of €40,000 and the threshold is increased in the next budget, can I then write the increased threshold amount off against the loan?

Mr BT, email

The weight of letters I receive on the issue of parental gifts and loans gives some insight into the continuing reliance of people on financial support from their parents, where possible, to finance their first home. Amid the occasional euphoria over a recovering economy, it's a bit of a wake-up call on the access to mainstream bank finance and the impact of Central Bank rules that first-time buyers encounter – and, of course, the eye-watering price of homes, particularly in and around Dublin, that they are having to contend with.

In your case, fortunately, your family is in the position to help out to the tune of €350,000. Good for you.

As you correctly note, as you have never received a gift from either parent worth more than the €3,000 small gift exemption threshold in any tax year, you have your full lifetime capital acquisitions tax (inheritance tax) exemption available to you. In relation to inheritances/gifts from parents, this threshold is currently €310,000 as you say.

So far, so good. The balance of your parents support can be given as a loan as long as commercial terms apply – otherwise any “discounted” interest rate would also be seen as a gift.

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If the Minister for Finance raises the current inheritance tax thresholds either in the budget this coming October or at some future point, it would be open to your parents to convert the balance of any loan at that time into an additional gift up to the new threshold.

Changing threshold

The threshold was raised last year but, before that, not since 2012. Still, at current levels, it remains below the threshold that applied in 2000. As recently as 2009, the Category A threshold – which applies between parents and their children – was as high as €542,544.

For what it is worth, should the Government move the other way and lower the threshold as they did in successive years between 2009 and 2012, there is no clawback. You are entitled to the benefit of whatever thresholds are in place when the gift/inheritance is made.

Finally, given your understanding of the system, you have probably allowed for this but, just in case... If you have not already used up the small gift exemption this year and if both parents are alive, you could receive an additional €6,000 from them (€3,000 from each parent) – ie a total of €316,000 – further reducing the level of any parental loan required.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice