“My son left school early and went into the building trade. When work dried up he left for Australia, but has now returned and is retraining as a teacher. I have been helping him out with his mortgage and college fees. Someone mentioned that I might be liable for tax on the money I have paid on his behalf. Is this true?”
It is a familiar story across a lot of rural towns and villages where parents have assisted adult children in meeting mortgage repayments and college fees during the economic downturn.
Previously, the tax legislation provided that “normal” and “reasonable” payments made by a parent during that parent’s lifetime for the support, maintenance or education of his/her children was exempt from gift tax. However, this was changed by the Finance Act 2014 for gifts taken on/after 23 December 2014, due to what was perceived as widespread abuse of the exemption. Consequently, your son might be liable for gift tax on the payments you have made on his behalf.
Lifetime parent to child exempt threshold
Currently, a child is entitled to a lifetime tax-free threshold of €225,000 in respect of gifts and inheritances taken from his or her parents.
Where the level of lifetime gifts and inheritances received by a child from a parent exceeds €225,000, the excess is charged to tax, currently at the rate of 33%.
Small gift exemption
In addition to this €225,000 tax-free threshold, the first €3,000 of gifts to a child in any year is exempt from CAT under the annual small gifts exemption.
This means that each parent can give a gift to a value of €3,000 to a child each calendar year without any CAT charge arising. So, two parents can make gifts to a child to the value of €6,000 in any year free of CAT. Indeed, two parents could, if they wished, gift €12,000 in total each year to each son or daughter and their respective partner free of CAT.
What gifts qualify?
The exemption is confined to the provision, in the lifetime of the parent, of support, maintenance or education to:
a minor child of the parent or,a child of the parent who is more than 18 years of age but not more than 25 years of age who is receiving full-time education or instruction at any university, college, school or other educational establishment, ora child of the parent who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself.The following are examples that are exempt from CAT:
Family home by child
The non-exclusive occupation of the family home by a child family member. Revenue’s view is that this does not give rise to a gift by the owner of the property to the family member. Thus, there is no question of trying to attribute a value to bed and board provided by the owner to a child of any age.
Free use of house by child attending university
The provision of the use of a house owned by a parent rent-free to a child not more than 25 years of age who is attending university to help support and maintain the child while in university is a normal and reasonable provision and is, accordingly, exempt from gift tax.
Payments to cover child’s normal college costs
Provision of a weekly/monthly sum of money to a child not more than 25 years of age attending college in order to cover rent, food, clothing, purchase of educational material and pocket money are not subject to CAT. Similarly payment of tuition fees and transport costs is not subject to CAT.
Cost of family functions paid for by parent
The costs of a family function, such as a wedding, paid for by a parent. Revenue takes the view that this is the expense of the parent rather than a gift to the child. Therefore, there are no gift tax implications. However, a gift such as a car, a house or a paid holiday is still a gift for gift tax purposes, notwithstanding the fact that it may be associated with a family occasion such as a wedding.
Gifts which do not qualify for the exemption
If a gift does not fall within the exemption, the value of the gift can be set off against the annual small gift exemption (currently €3,000 per person) and lifetime limit (currently €225,000 for parent to child). It is only when these two limits are used up that gift tax applies.
Examples
House purchase: The purchase of a house by a parent for a child would not be considered part of the “normal” expenditure of a parent.
Free use of house: If a parent buys a second house which he/she allows a child over 25 years to live in, the free use of the house is a gift equal to the annual rental value each year.
Gift of house deposit/money: A gift to a child of a deposit for a house or money in excess of the annual small gifts exemption of €3,000 is subject to CAT.
Consequently, depending on the value of the benefits and the age of your son, the gifts may be liable to CAT. However, given the significant tax-free threshold, it is unlikely that CAT is due. However, the gifts should be quantified at this stage as it may impact on gifts/inheritances he is due to receive in the future under your will for example.
“My son left school early and went into the building trade. When work dried up he left for Australia, but has now returned and is retraining as a teacher. I have been helping him out with his mortgage and college fees. Someone mentioned that I might be liable for tax on the money I have paid on his behalf. Is this true?”
It is a familiar story across a lot of rural towns and villages where parents have assisted adult children in meeting mortgage repayments and college fees during the economic downturn.
Previously, the tax legislation provided that “normal” and “reasonable” payments made by a parent during that parent’s lifetime for the support, maintenance or education of his/her children was exempt from gift tax. However, this was changed by the Finance Act 2014 for gifts taken on/after 23 December 2014, due to what was perceived as widespread abuse of the exemption. Consequently, your son might be liable for gift tax on the payments you have made on his behalf.
Lifetime parent to child exempt threshold
Currently, a child is entitled to a lifetime tax-free threshold of €225,000 in respect of gifts and inheritances taken from his or her parents.
Where the level of lifetime gifts and inheritances received by a child from a parent exceeds €225,000, the excess is charged to tax, currently at the rate of 33%.
Small gift exemption
In addition to this €225,000 tax-free threshold, the first €3,000 of gifts to a child in any year is exempt from CAT under the annual small gifts exemption.
This means that each parent can give a gift to a value of €3,000 to a child each calendar year without any CAT charge arising. So, two parents can make gifts to a child to the value of €6,000 in any year free of CAT. Indeed, two parents could, if they wished, gift €12,000 in total each year to each son or daughter and their respective partner free of CAT.
What gifts qualify?
The exemption is confined to the provision, in the lifetime of the parent, of support, maintenance or education to:
a minor child of the parent or,a child of the parent who is more than 18 years of age but not more than 25 years of age who is receiving full-time education or instruction at any university, college, school or other educational establishment, ora child of the parent who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself.The following are examples that are exempt from CAT:
Family home by child
The non-exclusive occupation of the family home by a child family member. Revenue’s view is that this does not give rise to a gift by the owner of the property to the family member. Thus, there is no question of trying to attribute a value to bed and board provided by the owner to a child of any age.
Free use of house by child attending university
The provision of the use of a house owned by a parent rent-free to a child not more than 25 years of age who is attending university to help support and maintain the child while in university is a normal and reasonable provision and is, accordingly, exempt from gift tax.
Payments to cover child’s normal college costs
Provision of a weekly/monthly sum of money to a child not more than 25 years of age attending college in order to cover rent, food, clothing, purchase of educational material and pocket money are not subject to CAT. Similarly payment of tuition fees and transport costs is not subject to CAT.
Cost of family functions paid for by parent
The costs of a family function, such as a wedding, paid for by a parent. Revenue takes the view that this is the expense of the parent rather than a gift to the child. Therefore, there are no gift tax implications. However, a gift such as a car, a house or a paid holiday is still a gift for gift tax purposes, notwithstanding the fact that it may be associated with a family occasion such as a wedding.
Gifts which do not qualify for the exemption
If a gift does not fall within the exemption, the value of the gift can be set off against the annual small gift exemption (currently €3,000 per person) and lifetime limit (currently €225,000 for parent to child). It is only when these two limits are used up that gift tax applies.
Examples
House purchase: The purchase of a house by a parent for a child would not be considered part of the “normal” expenditure of a parent.
Free use of house: If a parent buys a second house which he/she allows a child over 25 years to live in, the free use of the house is a gift equal to the annual rental value each year.
Gift of house deposit/money: A gift to a child of a deposit for a house or money in excess of the annual small gifts exemption of €3,000 is subject to CAT.
Consequently, depending on the value of the benefits and the age of your son, the gifts may be liable to CAT. However, given the significant tax-free threshold, it is unlikely that CAT is due. However, the gifts should be quantified at this stage as it may impact on gifts/inheritances he is due to receive in the future under your will for example.
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