I am a Canadian citizen, living in Canada. My son, daughter in law and granddaughter live in Ireland. They have put a down-payment on their first home and are awaiting confirmation of probate from the court by way of their lawyer.
Once probate is received, they will pay the balance of the purchase price of their home The property requires extensive renovations as it has been unoccupied for 10 years. We are waiting for an updated quote but it will likely cost tens of thousands of dollars.
I would like to give my son and daughter in law $50,000. My questions are as follows:
1. If they utilise the funds for the renovations and not for purchase of their home, would they be taxed on the funds?
2. If so, are there any options as to how this can be done without triggering tax consequences for my son and daughter in law?
3. Should the money be given to my son only so that it does not affect my daughter in laws threshold?
My accountant in Canada has advised that this will not trigger any tax issues for me.
Please advise as to how this can be done without any tax consequences to my son and daughter in law. They are a young hardworking family and could really use the help, especially with the high costs of real estate in Ireland.
Ms S.S., Canada
There’s nothing like the magic of owning your first home. It is a special time but, especially in today’s tight property market, getting the deal over the line can be a very stressful exercise. Contending in addition with extensive renovations must only add to the stress. I’ve never been brave enough to take on such a project.
For you, too, it is stressful. Parent s do worry as their children take on what will likely be the biggest financial commitment of their lives and, being so far away, can only makes things even more fraught.
And then there is the task of getting to grips with an unfamiliar tax regime.
To cap things off, you mention in your letter that the family is awaiting probate from the court before paying the balance of the purchase price. Probate is only relevant in Ireland for the administering of estates when people die.
That would mean that this unoccupied home has still not been dealt with 10 years after it was last occupied by the owner.
They may, of course, have spent their final years in nursing home care but otherwise it could indicate a protracted handling of the owner’s affairs after their death which would be a concern. Probate takes time but nothing like 10 years.
What you are proposing is what we call tapping the Bank of Mum and Dad and it is a common feature of the Irish property market, at least for those fortunate enough to have a parent or parents with sufficient financial resources to be able to help out.
Tax liability
The good news for you – and more particularly for your Irish-based family – is that it is perfectly possible for you to do this in a way that does not involve any tax liability. But, as you have surmised with your own legal background, how you arrange the transaction can be important.
In Ireland, capital acquisitions tax (CAT) covers both gifts and inheritances and is the responsibility of the recipient not the donor or the dead donor’s estate. The tax is charged at 33 per cent but there are a number of exemptions.
On gifts, a person can receive up gifts up to the value €3,000 in any calendar year from any one person without having to worry about tax. Oddly, there is no restriction on who makes the gift. It doesn’t have to be a relative at all: a neighbour could even gift money to
The one restriction is that it has to be for the unencumbered use of that person.
So, you could give a gift of €3,000 to your son and, separately, €3,000 to your daughter this year or any year with no tax implications for anyone. If, however, you also gifted €3,000 in your granddaughter's name with the intention that it would go to meet the costs of renovation, the Irish Revenue Commissioners would determine that the gift was not, in fact, for your grandchild but for the parents. That would bring their gift above the €3,000 limit each.
At that point, any excess is deducted from a separate lifetime tax free threshold from CAT. This threshold is determined by the relationship between the donor and the recipient.
There are three categories and, as it happens, your Irish-based family fit neatly into three separate categories.
Your son is Category A, which covers lifetime gifts and inheritances from a parent to a child. The current threshold here is €335,000. The thresholds can change from year to year – up or down.
Category B covers blood relations, so siblings, aunts, uncles, grandchildren, great-grandchildren etc. In your case, this is the threshold governing any gift or inheritance you give/leave to your Irish granddaughter.
The threshold here is a more modest €32,500 and, again, that is a lifetime threshold. So, if the grandchild has already received a substantial gift from an aunt, an uncle or another grandparent, it would it is diminish the amount of the tax free threshold available for any gift or bequest from you.
Finally, Category C covers what we call strangers in blood – i.e. anyone else not listed in the other two categories, including in-laws. Everyone assumes, as they are family, that they should come under Category B but they don’t.
Your daughter in law falls within this group, where the lifetime limit is €16,250.
Lifetime limit
In recent years, any upward movement in thresholds has been restricted to category A.
The money you are looking to contribute to your son’s family to help with this renovation is a substantial sum – close to €35,000 in euro terms assuming we re talking Canadian dollars. However, it is well shy of the lifetime limit that your son can receive from you.
The same is clearly not true of your daughter-in-law’s threshold from you. Any gift given to the two of them would likely be considered split in half by Revenue. In that case, the €17,500 your daughter-in-law is deemed to have received would put her over her threshold even if she has not previously received other gifts or inheritances in this category.
Yes, as it happens, she does also have that €3,000 small gift exemption wriggle room, so she would not face a tax bill on this occasion but it exhausts category C for her which might be useful to them as a family at a later stage.
On that basis, it make sense to gift this money directly to your son. He will face no tax bill, nor will his wife and the money can still be made available for the renovation.
To answer your first question, whether the money is destined for the house purchase or the renovation is immaterial in tax terms.On that basis, the second question is irrelevant.
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.
