Legal
There has been much comment in the media recently about how Revenue intends to tax gifts made by parents to their children towards the purchase of their first home.
Amorys have come across a number of scenarios relating to this new move. The following answers to frequently asked questions may be helpful.
Q.1 My parents are giving me €20,000 towards the purchase of my first home, will I have a tax liability?
A. The amount of tax to be paid depends on the total value of gifts or inheritances you receive from your parents during your lifetime. At present children are entitled to receive a maximum of €225,000 from their parents (including gifts and inheritances) tax free. This is called a ‘capital acquisitions tax group threshold A amount’. Any amount received over and above that is subject to capital acquisitions tax at 33%.
Q.2. How do I know what gifts are taken into account during my lifetime? I went to one of the highest fee paying schools in Ireland, will that be taken into account?
A. No. There is an exemption from capital acquisitions tax in respect of gifts made by a donor for the maintenance, education and support of their child during that donor’s lifetime, provided that expenditure is reasonable having regard to the financial circumstances of the donor. The Finance Act 2014 restricted this exemption to gifts made for the support, maintenance and education of the donor’s child as long as the child is under 18 OR under 25 and in receipt of full time education OR permanently incapacitated by reason of physical or by mental infirmity from maintaining himself or herself.
Items that would not come within the above exemption would be 1,000 shares in Facebook bought in your name during 2012 for example or university fees paid for you now at the age of 27 to go to Harvard Medical School. The market value of the gift on the date you acquire an interest therein is the value to be taken into account.
Q.3. My partner and I are purchasing a property worth €1,000,000. My parents are wealthy and gave me €300,000 towards a deposit. The remaining amount of the purchase price will be funded by our joint savings which come to €300,000 in total and the proceeds of a mortgage of €400,000. We will both be named jointly on the title deeds. Will either of us have a tax liability? I ‘used up’ my capital acquisitions tax threshold A amount a long time ago, but my partner has not received a gift or inheritance from anyone during her lifetime.
A. Scenario 1
Whether or not you or your partner will have a tax liability depends on what beneficial interest either of you has in the €300,000 that your parents kindly gave you towards the purchase of your home. If your parents intended the gift to go towards your interest in the property alone, you would have a tax liability of €99,000 (i.e. 33% of the gift) as you have already used up your capital acquisitions tax group threshold amount.
Total tax to be paid if you receive the full amount of the gift = €99,000.
Scenario 2
If however your parents intend to gift €300,000 to you and your partner in equal shares, you would have a tax liability of €33,000 (33% of €150,000).
In this situation, your partner would also have a tax liability. Your partner would be deemed to receive a gift from a stranger in blood and capital acquisitions tax group threshold amount C of €15,075 would apply. Anything above that amount would be taxed at 33%. Accordingly your partner would have to file a tax return and pay €44,525.25 to the Revenue calculated as follows:-
Market value of Gift €150,000
Less:
Capital Acquisitions Tax
Group Threshold Amount C (€15,075)
Taxable balance €134,925
Tax at 33% to be paid €44,525.25
Total tax to be paid if you and your partner receive the gift in equal shares = €77,525.25 (€33,000 + €44,525.25).
The foregoing amount of tax will need to be paid out of your own resources as if your parents were to fund the tax payment this would also be considered a gift for tax purposes and further tax liability would arise.
Death of joint tenants
Acquiring a property jointly presumes for tax purposes that you both own the property in equal shares. On the death of either of you, if you are not married at the time of death, the survivor will be deemed to inherit one half of the market value of the property on the date of death and this amount will be subject to tax @ 33% over and above your unused capital acquisitions tax group threshold C amount - €15,075. Unmarried cohabiting partners are considered ‘strangers in blood’ for tax purposes. If you are married at the time of death however, assuming the legislation remains the same, any inheritance received from the other partner/spouse would be exempt from tax.
In summary receiving a €300,000 gift from your parents is expensive and will add €99,000 or €77,525.25 (using the above two scenarios) to the cost of purchasing your home.
If any of the above circumstances apply to you or a variant of them, you should seek expert advice as further legal and taxation issues may well arise other than those explained above and it may be possible to structure the gift in a more tax efficient way.
Please note the foregoing should not be considered as comprehensive legal or taxation advice and should not be used to replace consultation with a legal professional or any other qualified expert.
If the reader has any queries in relation to any aspect of the above please contact Deirdre Farrell at 01 213 59 40 or info@amoryssolicitors.com.