Q. I am planning to purchase a house in Galway and my parents have kindly offered to provide the entire purchase price – in the region of €270,000. We are wondering is there a way to transfer this money and be tax compliant – but not for my parents or I to be taxed exorbitantly now or sometime in the future.
I should also point out that I have a disability; I am registered as blind and have reduced mobility.
I am in my mid-20s and in temporary full-time employment for the next 10 months, and then this will be reviewed.
Mr NG, email
A. The general rule is that substantial gifts (anything over €3,000 a year) count against your lifetime threshold on capital acquisitions tax (CAT) – gift or inheritance tax as it is better known.
There are exemptions but they are fairly narrowly focused, especially since the rules changed last year to put an end to some fairly widespread abuse of the system by wealthy parents tax planning for their offspring. But we shall come back to these.
Essentially your parents are buying this home on your behalf. On the face of it, that is a straightforward gift and the price of the property would count against the amount you can receive from your parents by way of gifts and/or inheritances over a lifetime under the Category A CAT threshold – currently €310,000.
I say currently as this figure does change. In the past decade, it has been as high as €542,544 and as low as €225,000.
On that basis, as long as you have received no other gifts or inheritances from either parent in excess of €40,000, you will have no tax to pay. For your parents, as long as the money comes from after-tax income or savings, they, too, will have no tax bill.
Of course, it does mean that if you later inherit from either parent sums in aggregate of more than €40,000, you may become liable to tax on that additional inheritance at that point – assuming the threshold has not risen in the meantime.
People do get themselves in a tizzy on these things. There are limits to tax relief for good reason but in the case of CAT, they are not ungenerous. If you need a home now and your parents can afford to buy it, what is the point of you living in penury (especially given that there is little longer-term security regarding your employment)? Indeed, in your work circumstances, if you were trying to buy a house for yourself, it could be a challenge getting a bank to lend at all. Meanwhile, in the current investment climate, your parents are effectively earning little or nothing on their savings unless they are taking fairly substantial investment risk on board.
Despite Irish social mores, there is little virtue in passing on family wealth only upon death when the beneficiary (a) may no longer need it, or (b) even worse, may have suffered significant financial pressure while parents had the means and the desire to eventually pass on an inheritance. Of course, you certainly do not want parents exposing themselves to an uncertain financial future by funding their children, so it is a delicate balance and differs for every family unit.
Now, coming back to the exemptions. Following the tightening of the rules last year in relation to “dwelling house relief” which is what we are considering here, there is essentially only one situation where a parent can gift a home other than their family home without any tax liability, and that is where the property is gifted to a dependent relative.
A dependent relative must be a direct relative of the donor(s) and must be “permanently and totally incapacitated because of physical or mental infirmity from maintaining himself/herself, or who is over the age of 65”.
In your case, the first element is fine and the last irrelevant as you’re nowhere near 65. The real question is to what degree your disabilities are “permanently and totally” incapacitating.
The fact that you are currently working would lend one to believe you might not qualify but it is not something that could be decisively adjudicated on the basis of a three-paragraph letter.
If you are looking to avoid eating into your lifetime CAT threshold – though I’m not sure that should worry you – you (and your parents) are going to need to convince Revenue that your blindness and reduced mobility are such as to stop you being able to provide for yourself.
If you are going down that road, I suggest you retain professional advice from a tax consultant familiar with the area.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
