Top law firm Arthur Cox has warned that the Government risks undermining the integrity of the tax system in its reform of the treatment of family gifts for tax.

It says proposals to tighten rules governing gifts from parents to their adult children will prove unworkable in their current form.

The Finance Bill includes a provision to limit an exemption from 33 per cent capital acquisitions tax (better known as gift or inheritance tax) on gifts from parent to children under the age of 18, or up to 25 if they remain in full time education.

The law firm says this would expose adult children in part-time education or otherwise vulnerable by virtue of financial distress, unemployment or disability to the threat of tax on everyday family support.

However, both the Department of Finance and the Revenue Commissioners have made clear that the reform is designed to curb abuse by high net-worth individuals trying to use the exemption to buy cars, homes and other expensive capital items for adult children.

Revenue said it had made clear it had no intention of pursuing adult children for routine family support, including the likes of bed and board in their parents’ homes. It notes also that a child can receive €3,000 each year from each parent without worrying about tax.

Anne Corrigan, head of private clients in Arthur Cox's tax division, believes the proposed amendment would have a harsh and unfair impact on normal family life.

“It is questionable whether the new rules will prove workable,” she said. “There seems to be a significant risk that they will simply undermine the integrity of the tax system and that will be the case if they are put on the statute book only to be widely ignored in practice.”

She said the change was a particular concern as the general tax-free threshold on lifetime gifts and inheritances to a child from their parents had fallen to €225,000 from over €540,000 in 2009.