Your MoneyQ&A

Will funding my child’s college education limit what he can get tax-free later on?

Limits on financial support for adult children were tightened a decade ago because of perceived abuse by well-off families

Parents are worried that funding their son through college might limit what he can receive from them tax-free down the line. Photograph: iStock

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Dominic Coyle
Sun Mar 10 2024 - 12:16

Our eldest child is doing his Leaving Cert this year and plans to go to college in Ireland next September. As he has no means of his own and will not be eligible for any grants, my wife and I plan to fund his education, as we have always done in the past.

When you take into account accommodation, student contribution fees and living expenses etc, this will probably amount to €15,000-€20,000 per annum for the next four years.

Given that he is now 18, will this have any tax implications for him going forward when it comes to further inheritances or lifetime threshold limits etc? As this is all new to us, we would appreciate any advice you may have.

Mr J.D.

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It’s obviously an exciting time for you as a family, and also a slightly unnerving one, as your eldest embarks on their first move out of the home when they go to college next year. Given he will not be commuting from home, the biggest challenge you are likely to face is finding accommodation.

Many of the on-campus accommodation offerings tend to be skewed in favour of first-year students so, assuming it is available, this might be the first place to start, if your son is sure what third level institution he is attending. The problems with this route are currently exacerbated because many of the companies running purpose-built off-campus student accommodation are now forcing students to sign up for 51-week contracts, when the students will only need the space for 40 weeks (nine months).

Following a series of articles by The Irish Times on the back of the experience of another reader, Minister for Higher Education Simon Harris has made it clear he will legislate, if necessary, to force providers to offer college-year rather than calendar-year contracts, but it remains to be seen whether that will put manners on the big developers in time for your son’s first year in college.

[ My daughter is sharing accommodation on university campus. Will she lose out on rent credit? ]

Your budget is not unreasonable, although you may find the costs somewhat higher. There are a number of student cost-of-living surveys – notably those produced by UCD and Technological University Dublin. For a nine-month college year, they estimate costs this year at between €14,094 (TU Dublin) and €24,480 (UCD). Naturally, these are only likely to rise over the four years your son might be at college, and it sounds as if he has siblings who might follow him.

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Your big concern though is how this might affect him in tax terms, as he is now an adult.

You are correct to check, as Revenue did tighten the rules on financial support for adult children a decade ago as a result of what it considered to be abuse of the previous regime by wealthy parents who were effectively funding large parts of their adult offsprings’ lifestyles by funding the purchase of houses, car, holidays, etc.

The good news from your perspective is that there is an exemption which is designed particularly to ensure that what would be considered normal parental financial support for children in full-time education is allowed.

As long as your son is in full-time education and is under the age of 25, the law is happy that you continue to fund their living costs

Section 81 of the 2014 Finance Act amended section 82(2)(a) of the Capital Acquisitions Tax Consolidated Act 2003, which covers the exemption of certain payments from consideration under capital acquisitions tax – better known to most of us as inheritance or gift tax. It allows adults to fund the support, maintenance and education of three groups of children. The first, fairly obviously, is minor children – those below the age of 18. A second is an adult child, permanently incapacitated by reason of physical or mental infirmity from maintaining themselves.

But it also exempts “a child of the disponer [that’s you], or of the civil partner of the disponer, 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”.

[ Funding my adult son as he returns to college ]

So as long as your son is in full-time education and is under the age of 25, the law is happy that you continue to fund their living costs, without it being seen as a transfer of your wealth to the child, even though they are over the age of 18.

That means there will be no impact on the lifetime limit of what your child can receive from you as his parents, either as gifts in excess of €3,000 in any given year from each of you – known as the small gift exemption – or by way of inheritance. That lifetime limit is currently €335,000, though clearly this can and has changed from time to time.

Finally, because these things can be sensitive sometimes and I certainly do not wish to cause offence, especially in the wake of what have proved to be fairly disastrously run campaigns to amend the Constitution on related issues: You have written this letter as parents, but using two sets of initials may make you more immediately identifiable – so I have here limited it to one, as is our usual style. I went for the father because it would be presumptuous of me to assume the mother does not retain her maiden name. Just in case you were wondering.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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