I am based in the UK although an Irish citizen and want to gift my dad some money. My dad is based in Ireland and retired but I wanted first to ensure I don’t create a tax liability for him as he receives a monthly pension.
I want to gift approximately €10,000 potentially over two or three years to eliminate him paying any tax on the money to say a thank you for putting me through my education and to give him an opportunity to go on holiday etc or spend as he sees fit. Is that possible? And how best can I do it?
Mr R.C., email
We deal regularly with various issues around inheritance and gifts from parents to their children so it is nice to come across a situation where a grateful child is looking to give some financial support to a parent who is now of more limited means.
However, you are correct to check what it might mean in tax terms. The last thing you or your father want is an unwelcome tax bill on money destined to make life a little easier for him.
There are two separate elements to your query . The first is how your respective residence in different countries would affect the issue and the second is how too ensure there is no tax bill.
Capital acquisitions tax (CAT) is the Irish tax relevant to inheritance and gifts. This is different from the income tax that applies to his income. Anything you gift your dad will not affect his income tax position on his pension.
All gifts and inheritances are assessed for tax based on the relationship between the parties
Irish CAT rules state that gifts and inheritances are subject to the Irish tax regime where any of the following three situations arise:
– the person making the gift or leaving the inheritance is tax resident or ordinarily resident in Ireland;
– the beneficiary is tax resident or ordinarily resident in Ireland;
– where property is concerned and that property is in Ireland.
While it appears that you may not be resident in Ireland for tax purposes, your father clearly is. As a result, any gift you make will be governed by Irish CAT rules.
And what do they say? Well, all gifts and inheritances are assessed for tax based on the relationship between the parties.
For instance, where a parent leaves money or makes a substantial financial gift to a child, it come sunder Category A – the highest – where the lifetime tax threshold is currently €335,000.
Category A also covers the blessedly rare situation where a child predeceases a parent and leaves part of their estate to the parent absolutely.
However, where that inheritance is a limited interest – such as right to the property or asset during their lifetime – rather than an absolute interest, where the asset/property becomes theirs and is part of their estate on their death, it comes under the less advantageous Category B. This has a much lower lifetime limit – €32,500.
More importantly for you, gifts also come under this Category B threshold.
Clearly, your proposed €10,000 gift is substantially below even this category B threshold. However, you need to consider whether your father has already received substantial financial gifts – sums over €3,000 – or inheritances from other close relations, such as his siblings, aunts, uncles, grandparents or other lineal ancestor or descendant (ie a great-grandparent, a grandchild etc). If so, they will also count against his lifetime category B threshold of €32,500.
The same applies to any large gift or inheritance he might receive after your gift to him. While your gift may not push him over the limit, it might mean he benefits less from a subsequent gift or inheritance from other category B relatives.
Anyone is allowed to gift anyone else under the exemption as long as they are doing so from their own resources
The easy way around this is the avail of the small gift exemption. Your father is entitled to receive €3,000 a year from you without any tax worries now or into the future.
To give a gift of €10,000 under that exemption, you would need to spread the benefit over four years. However, if you have a partner or spouse, they are also entitled to give your father €3,000 tax free a year. That would allow you to spread the €10,000 gift over a shorter two-year term.
This is because you and any partner/spouse would presumably be drawing from shared financial resource to make the gift. Anyone is allowed to gift anyone else under the exemption as long as they are doing so from their own resources: there is no need for any blood relationship.
Given we are in December, you could front-load any gift by giving him €3,000 this month and another €3,000 in January after the tax year has turned – unlike the UK, the Republic operates on a calendar year for tax purposes.
It’s a lovely thought and one that will no doubt be greatly appreciated by your father, giving him financial wriggle room to do something he really wants but might not be able to fund through his monthly pension.
Please 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.
