Is it possible for me to help my son with his big mortgage by lodging a substantial sum in the spring when the mortgage is up for renewal?

Would that be an appropriate time to ask the bank if this is possible?

They bought the house when prices were very high indeed and now have children. They both work but not in “big” jobs.

Would the bank charge a big fee and is there any way around this? Why is there a penalty? Will the tax man have to know and is there any way around this? I have already paid much tax on these savings of mine.

Ms R.H., Dublin

Okay. I spoke to one of the big banks. It may not be the one in which your son has the mortgage but I am assured the process is broadly the same regardless of which bank it is.

Do nothing until the fix expires. At that point, unless there is exceptional provision in his mortgage contract, it will revert to a variable rate (or, most unlikely, a tracker rate). He should check his fixed mortgage contract for the precise terms.

Once that default to variable has taken place, there is nothing to stop you paying a lump sum against the mortgage. He might be offered the choice of using it to lower monthly mortgage bills going forward or to shorten the life of the mortgage (by knocking it off the capital but continuing to pay the same monthly amount).

The latter is the more financially sensible approach long-term but, as affordability in the short term is your concern for your son, it might be better that he uses the lump sum to lower monthly payments going forward.

The bank will not make a charge for this lodgement – though again your son would want to confirm this expressly with them so they don’t pull a fast one. Once the lodgement is made, he can choose to stay on the variable (or tracker), or take out another fixed contract.

The whole thing should take little more than a day. There should be no difference in the fixed rate he is offered simply to extend the fix automatically on review or a couple of days later to facilitate this transaction but, yet again, he should check. All these checks should be done well in advance of the review date (and in writing) so that there is no last-minute panic or uncertainty.

As to tax liability, there certainly is no liability for you. As you say, the gift is coming from after tax income. However, for your son, it could be treated as a gift. He is entitled to receive gifts and/or inheritances from you and his father of €280,000 after the limit was raised in the recent budget. This is a cumulative sum that aggregates gifts and inheritances received from either of you. Above that sum, he will pay capital acquisitions tax (CAT) at 33 per cent. This might not affect him now but could do so later assuming he is inheriting.

Of course, you are allowed to gift him up to €3,000 a year under the small gift exemption without any impact on his CAT tax liability. So, for instance, you could gift him €3,000 before December 31st (for the current tax year) and a further €3,000 in early next year ahead of the mortgage review date (for the 2016 tax year), which would be a €6,000 lump sum without having any impact on his tax position. All this assumes he is good with money and will retain the €3,000 gifted this year for the mortgage when the review comes.

Lump sum

I’m obviously not aware of the scale of lump sum you are considering but, for your information, it is worth knowing that you are also allowed make the same gift to your son’s wife/partner as to him. That would raise the potential gift to €12,000 between them.

If the man’s father is still alive, he too is entitled separately to avail of the small gift exemption, a fact that could technically raise the amount available for any lump sum to as high as €24,000 on the basis outlined above without any tax impact or any need to notify the Revenue.

For what it’s worth, there is nothing stopping other friends or family members making similar €3,000 per annum gifts to your son or his wife/partner – people such as grandparents, siblings in less strained financial circumstances etc. The key thing is that the money is a gift, not a loan.

Anything else will count against his €280,000 lifetime limit – but then tapping into that now when they are financially stretched might make more sense than waiting for an inheritance when his need is no longer as acute.

Be aware that if your son’s dad is no longer living and he has previously benefited from an inheritance from his dad, that would also count against the lifetime limit.

In terms of notifying Revenue, the onus is on him and he need do so only when his gifts and inheritances from you and his father exceed 80 percent of the threshold – i.e. €224,000. Even then, no tax is liable until he tops the €280,0000 (or whatever the relevant figure is at that time. It does rise and, occasionally fall).

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.