When gifting money to children a little planning can save a lot of tax.

While gifting towards a property purchase can be a great way to support your child’s future, there are important financial considerations to keep in mind if you do not want to over pay Capital Acquisitions Tax (CAT) in Ireland.

Determining the amount you can gift in Ireland without incurring taxes

CAT is a tax charge on gifts and inheritances where the value of these exceed that individual’s lifetime tax-free threshold. You do not have to die to give your child inheritance monies. As of 2021, the tax-free threshold for gifts from a parent to a child is €335,000 over their lifetime. Anything over this amount attracts a 33% charge.

For grandparents and grandchildren, the lifetime threshold is far lower – €32,500. But, if the property purchase is not imminent, there are other ways for family members to gift to grandchildren.

How to take advantage of the Small Gift Exemption

The small-gift exemption is the ideal mechanism to build up a fund to be used at some point in the future to buy a first home. In addition to these lifetime thresholds mentioned above, anyone may receive a gift up to the value of €3,000 from any person in each calendar year without having to pay Capital Acquisitions Tax (CAT).

This means that you may take a gift from several people in the same calendar year – the first €3,000 from each person is exempt. Each parent, or grandparent, can give a gift to a value of €3,000 to a child (or to anyone else) so two parents could gift €6,000 in any year free of CAT. It’s per person so a couple could gift €12,000 in total each year to a couple (€3,000 from each parent to each child).

The person making the gift does not need to be related to the recipient avail of the tax exemption. There is no obligation to spend the gift in that year and they can be saved up – for example, to meet a deposit on a house in the future. Gifts which qualify for the small gifts exemption do not reduce the lifetime tax–free thresholds. For families with significant assets and a little time on their side, putting the money away each year can make a lot of sense.

But if the gift is not properly documented, it could be a difficult and expensive issue down the track. Care should be taken to ensure that if Revenue were ever to query the transfer of funds you would be compliant. Key to this is ensuring that you have a record of the annual transfers and that the account the money is going into is in the name of the child.

Get advice – understand the legal and tax implications of gifting

Before gifting a house deposit to your child in Ireland, it’s important to seek professional advice on the legal and tax implications of the gift, as well as any potential pitfalls to avoid. A professional can help you structure the gift in a way that protects both you and your child.

Every family is different so consult with trusted professionals to ensure that you are making informed decisions, and taking the best actions for everyone’s future.