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The Ramifications Of Giving Your Children Financial Gifts
As a parent, there is no greater joy than helping our children realise their goals in life.
Their ambition may be to secure a deposit on their first home or perhaps pay off a student loan that has been holding them back for many years. Whatever their goals look like, being in a position to give them a financial gift can assist them greatly in reaching that target.
But what are the tax ramifications associated with this gesture? How do you ensure that the bulk of your gift ends up in your child’s bank account?
In this article, we examine the current tax exemptions in place to ensure that giving your children financial gifts won’t ring up a sizeable tax bill for you in the process.
What amount can I currently gift to my children tax-free?
Capital Acquisitions Tax (CAT), also known as gift and inheritance tax, refers to the tax placed on any gifts or inheritance you bestow on your loved ones. Any amount that exceeds the current thresholds is taxable at 33% and the tax due is payable by the recipient of the gift.
The tax-free thresholds that apply to gifts or inheritances are determined by the relationship between the individual giving the gift and the recipient.
The three CAT threshold groups are as follows:
The Group A tax-free threshold currently stands at €335,000 and applies when the recipient of the gift/inheritance is:
- a child – son, daughter, stepchild or in certain circumstances, a foster child
- a grandchild aged under 18 years (in the case where the child of the disponer is deceased)
- a minor child of the spouse or civil partner of a deceased child of the disponer
When a parent takes over full ownership of a gift or inheritance from their child, they will also be included in Group A.
The Group B tax-free threshold currently stands at €32,500 and applies when the recipient of the gift/inheritance is:
- a brother or sister
- a niece or nephew
- a grandparent
- a grandchild
- a lineal ancestor or a lineal descendant
- a parent of the disponer, where you take a gift or a limited interest
The Group C tax-free threshold currently stands at €16,250 and applies in cases where the gift/inheritance recipient’s relationship to the disponer is not already defined in Groups A or B.
If you are planning on giving your child a financial gift, it’s important to note that the thresholds outlined in each group refer to a lifetime limit.
This means, for example, if your child has already received a gift or inheritance from you or your spouse, this amount will be deducted from €335,000, and the remaining balance will be the new tax-free threshold.
However, there are exceptions to this rule.
What is the Small Gift Exemption?
If you would like to begin helping your children financially at the current juncture of their life but are understandably conscious of prematurely decreasing the threshold that applies within Group A, you’ll be very interested to learn about the Small Gift Exemption.
This tax exemption enables you and your spouse to individually give a gift of up to €3,000 to each child, in any calendar year, and it will not be subject to CAT or affect the lifetime limit outlined in Group A.
What’s more, this tax-free cap of €3,000 also applies to any gifts given by you to your child’s spouse or their children, meaning you have the potential to transfer thousands of euros worth of your assets to your child’s family, tax-free, every year.
Other notable tax exemptions
While it’s wise to note the group thresholds to minimise tax implications related to annual gifts larger than €3,000, it’s also important to be aware of other gifting opportunities that are completely exempt from CAT.
The Dwelling House Exemption enables you to gift your home to your child before your death, and at a time when they might be struggling to hop on the property ladder due to financial insecurity and soaring house prices.
This gift will be entirely exempt from CAT if:
- The house was the recipient’s main home for the previous three years
- The recipient does not own or intend to purchase any other house
- The recipient is a dependent relative of the person making the gift because they are either physically or mentally incapacitated or aged 65 or over at the date of the gift
In the case of the latter, where your child may be dependent as a result of a disability, you can also make tax-free financial payments in the form of a gift to support their care.
Monetary gifts provided to your children that enable them to continue their education until the age of 18 or 25 (in the case of full-time education) will also be exempt from CAT.
How to avoid unnecessary tax bills on financial gifts
When assisting your children financially at any stage of life, the aim of the game is to ensure as much of your hard-earned savings as possible end up in their pockets. Knowing the ins and outs of CAT exemptions associated with financial gifts is a great place to start, but with so many specific rules and stipulations, it’s easy to miss opportunities for further tax relief.
Enlisting the guidance of an experienced financial advisor can help you to avoid this.
At Symmetry Financial, we can provide the financial advice you need while helping you to create a roadmap geared towards achieving your goals, both for you and those you love.
Don’t be penalised for attempting to help your family; book a consultation with an impartial financial expert at Symmetry Financial today and ensure your money goes as far as it can.
If you’d like a free, no-obligation consultation for your mortgage, pension or financial needs, get in touch here, call us on 01 6831673 or email us directly on info@symmetryfinancial.ie.
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