A few weeks ago, we wrote about the small gift exemption that allows a person give up to €3,000 in any tax year to anyone without any tax implications for the recipient.
It sparks a lot of interest and a series of follow-up questions from readers, which I thought it best to tackle here in one go.
My son has nine aunts and nine uncles. Is it allowed by Revenue that, if he was “fortunate”, he could legally receive €3,000 from each per annum, or is the amount of people gifting that amount limited?
Mr S.M.
That’s the beauty of this thing, and why it has the potential to be such a valuable tax relief.
Taking the example of your son, who has nine aunts and nine uncles, should each of them have the financial resources to do so and decide to gift him up to €3,000, he could receive up to €54,000 in a single tax year.
There would be no tax implication for him either now, or into the future – no watering down of his capital acquisitions tax lifetime tax-free exemption threshold. And there are no tax issues for any of the aunts or uncles either, as the funds are coming from their net, after-tax income.
Even as a one-off, that’d be a pretty impressive gift but there would be nothing to stop those aunt and uncles making that same gift again in the future, either now and again or every year.
So, no, there is no limit.
Not only that, it is not even limited to family. Those aunts and uncles technically could do the same thing for your neighbour, even if they had no family connection or some stranger in the street. Now, clearly, that is unlikely for all sorts of reasons, but as the law is framed, there is nothing technically to stop that happening.
It might be one way for all those people who do not have children and want to see their preferred family or friends benefiting from tax-free inheritance to arrange just such an eventuality. However, the key thing here is that it has to be given as a gift while you are alive.
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If I pay €3,000 to a school towards school fees for a grandchild, would this be regarded as a gift to his or her parents by the Revenue? Alternatively, do gifts to both my son-in-law, and daughter count as separate gifts to individuals?
If so, could each parent receive €3,000 from father and father in law and mother in law and mother – a total of €12,000 in a year – without incurring tax liability under the gift allowance?
Mr B.H.
My understanding is that contributing towards your grandchild’s school fees would be considered a gift to the parent, not the grandchild, as school fees would be their choice and liability, not the child’s.
On a more positive note, yes, each parent can contribute to each child and son/daughter-in-law. So if you, your wife and each of your son-in-law’s parents were in a position to gift the full amount of the exemption to both your daughter and her husband, they could each receive up to €12,000 in any tax year – or €24,000 between them.
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If I gift €3,000 to a person, would a subsequent Christmas or birthday gift, in the same tax year, cause you to exceed the small gift exemption?,
Mr T.O’C
Strictly speaking, yes. Birthday and even wedding gifts are expected to come under the small gift exemption.
In practical terms, I’d be careful if you were giving a wedding gift in any given year, that the value was deducted from any other gift you gave that year to ensure you stay below the €3,000 threshold.
However, in relation to birthday or Christmas gifts, I have never come across a situation where Revenue determined that it should be deducted from a person’s lifetime tax-free capital acquisitions tax (gift or inheritance tax in plainspeak) limit. Frankly, I cannot imagine they would consider it worth their time unless those birthday or Christmas gifts were themselves in the order of €1,000+.
As usual, if Revenue sees blatant abuse, they will lay down a marker.
So, while the letter of the law says all gifts in a year should be totted up to stay within the €3,000 limit, I think you will be perfectly safe giving a modest birthday or Christmas gift on top of the €3,000 if that’s what you choose to do.
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Does a gift to a UK resident qualify for a similar exemption as applies to the €3,000 gift tax exemption as applies in Ireland?,
Mr B.H.
The small gift exemption is a particularly Irish construct, although most countries do have their own arrangements in relation to what can and cannot be given free of tax.
In the case of the UK, the position used to be quite straightforward. If you received a gift and the person making the gift survived for seven years from that time, then the gift was not taken into account for inheritance tax.
The position is somewhat muddied for people in your position in that it would be the estate that was liable for inheritance tax on such gifts and, as you live in Ireland, your estate would not be affected as it would come under Irish jurisdiction not HMRC.
In addition to that seven-year rule, the British have specific annual limits on gifting and a separate regime for weddings (depending on your blood connection to either of the couple), birthday/ Christmas gift and a modest small gift allowance. On top of that, they have a fairly liberal approach to regular gifts, such as a parent helping a child with a monthly or quarterly stipend.
But again, most of the limits apply to the donor, not the beneficiary.
So, in practical terms, I don’t see any reason why you could not give up to €3,000 a year to someone (or maybe more than one person) living in the UK without having to worry yourself about the tax implications – for the recipient or for yourself.
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A good one, does it affect children’s inheritance sum?
Barry M
That’s the whole point, as the original piece explains. It does not in any way affect or reduce the full tax-free threshold available to a child for inheritance from a parent, or anyone else.
- 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, with a contact phone number. This column is a reader service and is not intended to replace professional advice.
