I may have misunderstood something in a recent article, so can you please clarify?
I am on occasion using the €3,000 annual gift allowed by Revenue to help family members. I keep track of what I give, when I give it and to whom
Ultimately, these family members will also inherit a portion of my estate when the time comes. Will the amount they’ve received in gifts while I am alive be deducted from the overall tax-free sum – in this case the current tax-free amount is €40,000 – or are the transactions entirely separate from each other?
Ms MK
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The small gift exemption is, for most people, one of the most accessible tax reliefs available in the Irish system and it is something I mention an awful lot in this column because of that. However, usually that is in passing, so it is worth taking the time to focus on it, especially if there is any danger of people being confused about what they can and cannot do.
The exemption means that a person can give up to €3,000 to any person in a tax year with no tax implications. And if you are a couple, each of you can give this €3,000, so the recipient effectively gets €6,000 tax free. And no, it does not have to come from separate accounts.
It does not have to be the full €3,000; that is simply the ceiling on what is allowed. And just because you give it one year, that does not lock you into future similar gifts. You can give it every year, as a once off, or every now and again as finances allow.
And you can give it to different people at different times, depending on your choice and who you think might need it more at that point. They can be family or friends; they could even be perfect strangers.
It is particularly popular with grandparents, who may be under less financial pressure than parents with a mortgage hopefully paid and no ongoing costs in rearing a family, and are happy to help a grandchild with college costs, a travel fund or building up a deposit on a home.
The sum is not insignificant in itself and, if given over several years, can quickly accumulate to a substantial fund.
The only rule of note is that the nominal beneficiary must be the end user. If you give your child €3,000 in a year and also give their children €3,000 each with the intention that your grandchildren’s gifts will go to support household bills, all of it would be deemed to go to your own child and anything over €43,000 would be deducted from their lifetime tax-free capital acquisitions threshold.
It is certainly a good idea to keep note of what has gone to whom. The beneficiaries would do well to keep a similar note.
For reassurance, nothing given under the small gift exemption will count against their tax-free lump sum in relation to anything they might receive from you in your will.
You mention that the threshold in this case is the category B €40,000 covering gifts and inheritances received from a sibling, a grandparent, or an aunt or uncle by blood. People sometimes assume it includes other close relatives such as cousins or in-laws, but it does not.
The only things that will count against this threshold are:
- any gifts in excess of €3,000 in a year from you;
- any gifts in excess of €3,000 that they receive from anyone else under category B;
- any inheritance that they have received since December 5th, 1991, from any of those people mentioned in B above.
So there is nothing to fear in your case. Your gifts under the small gift exemption will not affect the recipients’ inheritance tax-free limits down the line.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com, with a contact phone number. This column is a reader service and is not intended to replace professional advice.
