Making the most of the small gift exemption

Regarding the €3,000 threshold a year to a family member – in this case a child – does that mean, that a father can give this amount to a child and that the mother can also give this amount to the same child (meaning €6,000 in total?) I presume that the €3,000 applies to each child every year.

If I own a car can I transfer ownership to one of my children without any problem or liability to either the child or myself?

What about making a small loan to a son or daughter, around €10,000? Any problem there?

Ms B.O’D

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Turning a parental loan into a gift

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For years, the small gift exemption was the forgotten child among tax reliefs. Perhaps it was the Celtic Tiger effect when so much money was washing around that €3,000 hardly seemed worth the effort. Whatever, there is clearly a much heightened interest in the value of the small gift exemption these days and that shows great common sense.

In terms of intergenerational tax planning it remains a very useful and tax efficient tool.

As this is an area I have previously addressed in passing on other questions, I will keep it fairly brief but, yes, you are correct that each parent can give €3,000 each year to each child – meaning €6,000 in total per child per year.

And, yes, you can give it each and every year if you choose. There is no upper limit on the number of times you use the exemption, nor does it matter whether your children are minors or adults.

Equally, it doesn’t matter if you use it some years and not others. It is entirely up to you as the people giving the money.

Also, for what it is worth, each child could receive up to a further €3,000 from anyone else as well – say a grandparent, a godparent, an elder sibling, a friendly relative or, in-law, even a total stranger. There is no upper limit on how much anyone can receive in a given tax year under the exemption – only that no more than €3,000 comes from any one person.

The key thing is that the money must be the property of the person making the gift and it must be for the use of the person receiving it – i.e. a grandparent could not gift a grandchild €3,000 with the intention that it was used by the child’s parent to defray mortgage or other household expenses.

Moving on, if you own a car and transfer it to a child, it too constitutes a gift and, depending on the value of the car, it could have a tax liability. Assuming the car has a current market value of less than €3,000, and you have not used the small gift exemption in that year with that child, there’s no problem. Otherwise, it would count against the lifetime limit of what a child can receive from a parent without paying gift or inheritance tax – capital acquisitions tax. That figure is currently €310,000 though that can change from year to year.

If you make a loan to a son or daughter, it must carry a market rate of interest or it will be considered a gift in its entirety under the same rules as apply to the car above.

Market rates on personal loans are currently around 6.5 per cent. So on a €10,000 loan, that would be annual interest of €650. If you wished, you could discount this interest bill against the small gift exemption in subsequent years until the loan is paid, leaving you roughly €2,350 a year left within the exemption.

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.