Will Revenue want proof of €3,000 gift to child?

Q&A: Dominic Coyle

As long as everyone stays within the rules, Revenue is comfortable that this is a well-used and, in the grand scheme of things, modest tax break.

As long as everyone stays within the rules, Revenue is comfortable that this is a well-used and, in the grand scheme of things, modest tax break.

 

The €3,000 tax free gift frequently features in your column. I have been making such gift (in cash) to my son for years but there is no formal document to verify this. Should I prepare a formal memo to verify this practice in case Revenue seek some evidence of the gift?

From your contact with Revenue, could you ask them if they would seek such verification (except in extreme circumstances)?

Can you confirm that children can make such a gift to parents ? I think you mentioned this in previous replies.

Mr P.G. per email

You’re right. I do mention the small gift exemption quite a bit and deliberately so. For most people, it is the most straightforward and efficient method of tax planning – allowing them to reduce their assets while caring for loved ones without any tax implications and also staying absolutely within the letter and the spirit of tax law.

In my book, for those who can afford it, it’s a no-brainer.

And you are far from alone in doing so in cash.

Is there a chance the Revenue will come calling? There’s always a chance but, in reality, no. Revenue has more than enough to be doing tracking down cases where they are fairly sure there is something fishy going on. Like the rest of us, they operate on limited resources.

Unless your son suddenly starts spending considerably more cash than his tax returns – or those of his employer – show him as being paid (the extreme circumstances you mention), there is not likely to be any alarm raised. This €3,000 per annum will not be the difference between triggering an investigation or not.

Having said that, paper trails are never a bad thing, if only to keep records straight. I don’t think you need a formal legal memo or any such thing but it might be an idea to pay the sum by cheque or electronic bank transfer. That would give you a clear record of the payment should any confusion arise down the line.

To your second question: can children make a similar gift to their parents? Absolutely. There is no limit on who can give to whom under the small gift exemption. You could, technically, give to neighbours, friends or even perfect strangers if your funds allowed and the fancy took you.

There are really just two restrictions. You can only gift a maximum of the €3,000 to any one person in any one tax year. And it doesn’t have to be in one payment – you could, for instance, make 10 payments of €300.

The second rule is the one where you will find Revenue getting picky. The gift must be for the benefit of the person receiving it. For instance, if you gave this son €3,000 and then gave someone else €3,000 with the intention that they, too, would give it to your son, Revenue would not be at all happy.

As long as everyone stays within the rules, Revenue is comfortable that this is a well-used and, in the grand scheme of things, modest tax break.

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. No personal correspondence will be entered into.

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