Revenue to crack down on parents’ tax-free gifts

The Revenue Commissioners has fired a warning shot to parents looking to avail of loopholes in the law to gift their offspring expensive items tax free.

According to a newly issued guidance from Revenue, offspring who are in receipt of expensive gifts from their parents — anything from mortgage contributions, honeymoons, and accommodation/rent-free dwelling in secondary property assets — could be liable for gift tax payments.

Revenue issued the update following up on restrictions made, in the latest Finance Bill, to exemptions from capital acquisitions tax which, typically, imposes a charge on individuals who receive gifts and inheritances where the value exceeds that individual’s lifetime tax-free threshold.

The concern on the part of Revenue is that parents are essentially abusing exemptions that cover payments for things like child support, education, and maintenance; by using them to gift valuable assets to their offspring tax free.

The tightening up of the exemptions will now only see offspring in full-time education up to the age of 25, or those who are incapacitated, qualify.

Offspring will be exempt from tax liability if their parents pay for their wedding — as Revenue sees that as a personal expense rather than a gift — but there will be no exemption if parents pay for the honeymoon, as that would be viewed by Revenue as a gift, in much the same way as a house or a car would.

Also potentially liable will be adult children currently living rent free in secondary houses owned by their parents. In this case, the liability would be based on the income said property might earn if rented on the open market by the owner.

In its guidance note, Revenue said: “Revenue does not accept that gifts to a child, who is financially independent, can come within the terms of the exemption. Neither does it accept that gifts of a capital nature are exempt from gift tax under this section.”

However, given that offspring only pay tax when the combined value of gifts and inheritances received from parents is more than €225,000, the new rules are expected to have relatively little impact on the public.

That figure is half what it used to be just five years ago.

Fine Gael MEP Brian Hayes has urged the Central Bank to rethink its new mortgage deposit proposals, which are set to call for house buyers to save a deposit of 20% before they can be eligable for a mortgage.

The proposal is aimed at lowering the risk of fresh negative equity instances, but Mr Hayes has described the expectation of people saving 20% of the value of a new hosue “unreasonable”.

As part of the tightening of the capital acquisitions tax exemptions, one gift losing the tax-free status is a payment of over €3,000 by parents to their offspring in order to help them get onto the property ladder. This is being viewed as another blow to the Central Bank’s proposals.

The new limits to mortgage buyers are due to come into force on New Year’s Day.

The Department of Finance recently suggested the proposed mortgage rules were too restrictive and could block buyers trying to access the property ladder.