We want to give our son a wedding gift but what about tax?
Q&A: Dominic Coyle
A wedding gift, by any reasonable interpretation, would seem to be a gift to both parties. Photograph: iStock
My spouse and I have, within the current year, gifted our son €6,000 which we understand is exempt for CAT purposes. We wish to present him and his fiancée with a wedding gift.
I would be obliged if you can outline to us what the thresholds, or Revenue practices, are for expenditure on wedding gifts which are not deemed to be part of the €3,000 annual exempt gift allowance for CAT purposes.
Mr B.C., email
You might find yourself in a slightly tricky situation here.
Wedding spending has always been a contentious area, especially as Revenue has tightened rules on parental support for adult children in recent years.
Apart from a small minority who were effectively using the old section 28 of the Capital Acquisitions Tax Consolidated Act to essentially fund large portions of their adult children’s lifestyle – such as buying sites or homes, or furnishing them, and then claiming relief – this has not been an issue for most ordinary folk.
But the perceived abuse of the section for “tax planning” purposes by some saw the measure amended in 2014 in the Finance Act.
At the time, there were two issues of concern about weddings.
The first, and more significant, was how it would affect parents who choose to pay for or contribute to the cost of the actual wedding itself.
The second was how the new rules would apply to gifts.
On the first, Revenue provided assurance that funding of wedding costs was still considered reasonable expenditure as a family function and would not lead to any liability to gift or inheritance tax – formally capital acquisitions tax.
However, in relation to wedding gifts, Revenue stated that the value of any wedding gift would need to be within the limits of the small gift exemption.
Otherwise, they said, it would count against a person’s lifetime capital acquisitions tax (CAT) tax-free threshold. In relation to gifts from a parent, or parents, to a child, that threshold is currently €310,000 – having risen to that figure on October 12th last from €280,000.
Once that threshold has been reached, tax is due on any further gift or inheritance from a parent at a rate of 33 per cent.
Revenue says its position has not changed on this issue with the tightening of CAT rules in 2014 and that the value of wedding gifts have always needed to come within the parameters of the small gift exemption.
Possibly, it’s just one of those things that people never really thought too much about.
In truth, it has not generally been an issue for most people in terms of the value of wedding gift they would purchase, nor has it been one on which the Revenue has been hyper-vigilant.
However, with more and more people becoming aware of and using the small gift exemption, it is an issue that is cropping up more frequently. And as Revenue is increasingly sensitive about tax planning within families, it is more alert to perceived abuses.
Furthermore, as CAT is self-assessed, the onus is on your son to keep an accurate account of his liability to Revenue on this.
From your point of view, you have already used up the small gift exemption of €3,000 per person (€6,000 between you two parents to your son) this year.
That means any additional expenditure on a wedding gift in 2016 will count towards his lifetime CAT category A threshold on gifts and/or inheritances from parents.
Of course, you have not, as I understand it, given any financial support to your son’s fiancée and, between you, there is nothing to stop you gifting her up to a maximum of €6,000, between you, this year – on top of the support already given to your son.
Having said that, the one limitation on the small gift exemption is that it must be intended for the person receiving it.
Any “passing on”, where the support/gift is made to one person but intended in whole or in part for another person, would see some or all of the gift counted against the ultimate beneficiary’s lifetime limit.
A wedding gift, by any reasonable interpretation, would seem to be a gift to both parties and not just your son’s fiancée.
How aggressive the Revenue would be on this in relation to a once-off wedding gift remains to be seen but they are sensitive to perceived abuse of the exemption.
The alternative, as we are so close to the end of the year, is that perhaps you should consider waiting until the turn of the year to make any further gift to your son and his fiancée.
As I said, tricky.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice.