The €3,000 annual small gift exemption should be abolished

[ClubMan]

I'm a PAYE employee, I pay tax on all my income.

That's incorrect.
Tax bands, credits and exemptions mean that you don't pay tax on all of your income.

 

[ClubMan]

I agree, this is earned income. Tax paid at 51%.

This is also incorrect.
Look at your end of year balancing statement and express the tax/USC/PRSI actually paid as a percentage of your gross income.
It'll be far less than 51%.

 

[Gordon Gekko]

The €3,000 exemption is there to stop ludicrous things being caught in the tax net.

e.g. I lend you my car for the summer, I invite someone for a meal at the chef’s table in Chapter One, I bring my nephew on holidays, etc.

There should be a de minimis amount and €3,000 is about right.

Let’s not forget that gifts are effectively tax-free in the UK.

 

[Steven Barrett]

Is this true, that CAT is not required for a gift of a house deposit or to pay for a wedding? How does the revenue deal with these?

I thought that say if I gave my child €21K in 7 years time to use as a house deposit, that she would have to pay tax, but if I gave her €3K per year for the next seven years she would not need to pay tax? My only problem was fretting she would waste it partying, and holidaying in the next few years. She has just finished university where I paid €3K per year in “fees”, so it seemed a good idea to me to keep doing this.

It is true that not a lot of people know about the €3K gift exemption. My mother wanted to give 2 specific grandchildren cash gifts but did not want to exclude any other grandchild. She was also talking about paying specific costs on their behalf, which varied in value so she was fretting about fairness. so I explained to her about the small gift tax exemption. She was delighted that it was all above board and had a specific limit and organised it for them all. All the grand kids late teens, early 20’s were chuffed.

I have done this for a number of clients who have kids over 18 and there hasn't been a problem. You put it in a 28 day notice account or another hard to get at account such as the post office or and investment account. If you put it in their current account it will be spent and you'll only have yourself to blame. Leave it out of reach, and it will be fine.


On the exemption as a whole, it is adhered to by parents using long term transfer of wealth. There are lots of parents who give their children money all the time to buy cars, house deposits, weddings etc and do not report it to the revenue despite it costing them tens of thousands of euro. Spend €30k on a wedding, that's 10 year's worth of gifts. The revenue won't be coming after these people.

 

[Brendan Burgess]

people would find ways round it.

But on that basis, we should abolish Income Tax. People find away around it.

Brendan

 

[Brendan Burgess]

Let’s not forget that gifts are effectively tax-free in the UK.

Yes. And that makes no sense.
There is a tax on a person's estate but not on the beneficiary.

Brendan

 

[Gordon Gekko]

Yes. And that makes no sense.
There is a tax on a person's estate but not on the beneficiary.

Brendan

They adopt the logic that when a person dies, the State takes some of their assets.

Whereas a person should be free to do whatever they like in terms of gifting their own cash.

e.g. if I earn an extra £10k, net £5k and want to give that £5k to Brendan Burgess, it’s nobody’s business unless I die within seven years.

 

[The Horseman]

That's incorrect.
Tax bands, credits and exemptions mean that you don't pay tax on all of your income.

Technically you are correct however if you look closer the €3k is taxed at the 51% as most people spend up to 42k (assuming a married couple and tax band etc) on day to day expenses, mortgage payments, etc.

 

[Brendan Burgess]

Whereas a person should be free to do whatever they like in terms of gifting their own cash.

That is an argument against CAT full stop.

As I have pointed out elsewhere, the children of wealthy parents have a huge advantage anyway over the children of poor parents.

This is levelling the playing field a bit.

Brendan

 

[Brendan Burgess]

Parents already spend €6k - €7k per year for children for private schools plus a lot if extras on top, so can’t really see why anybody should get too worked up over this €3k annual exemption

So the kid is getting €7k a year in private school fees.
Then €3k a year for 30 years to avail of the Small Gifts Exemption.
Then maybe Business Relief on a business worth €2m.
And with a Threshold of €335k ...

They pay no tax at all on their gifts or inheritance.

Opinions differ, but that does not seem fair to me.

Brendan

 

[The Horseman]

I am writing my submission to the Commission on Tax and Social Welfare

I had initially suggested making the €3,000 Small Gifts Exemption from CAT cumulative but now I think it should be completely reformed in light of subsequent comments.

The rationale for exempting occasional small gifts from the administrative burden of CAT is a good one.

However, it has become an integral part of tax planning with wealthy couples giving their children €6,000 a year over a period of 30 years. Thus a person gets €180k of gift tax exemptions on top of the already generous €335k threshold.

Option 1 - Abolish it completely
I can receive gifts up to €16,250 cumulatively anyway. So if I get a gift of €3,000 from a friend, it's exempt from CAT anyway.

If I get €3,000 a year from a parent for 30 years, then my €335k threshold should be reduced by this amount.

The more I think of it, this really is the best option.

An occasional small gift is exempt anyway so the exemption is not needed.

I am at a loss why you are even considering this.

By effectively removing this exemption you want to give more tax to Revenue. Removal of these type of incentives act to discourage people trying to better themselves.

Why better yourself to work hard, do without to help your family etc. Remember this exemption when used is used by the ordinary person.

 

[The Horseman]

So the kid is getting €7k a year in private school fees.
Then €3k a year for 30 years to avail of the Small Gifts Exemption.
Then maybe Business Relief on a business worth €2m.
And with a Threshold of €335k ...

They pay no tax at all on their gifts or inheritance.

Opinions differ, but that does not seem fair to me.

Brendan

The child is not getting 7k a year rather they are going to a school which should ensure they achieve an education that should secure them well paid employment. This well paid employment will result in income tax revenue and ensure they will be net contributors to Revenue in the future.

 

[Brendan Burgess]

We have huge inequality in society.

And a lot of that inequality is inherited.

I would prefer to see people rewarded for their work than for their accidents of birth.

Brendan

 

[The Horseman]

We have huge inequality in society.

And a lot of that inequality is inherited.

I would prefer to see people rewarded for their work than for their accidents of birth.

Brendan

Education has never been more accessible. When I left school in the late 80's only those with money could go to college. Since then I have secured a degree, masters and a professional qualification accountant (all part time).

Not all "Inequality" is inherited, some of it is as a result of sacrifices made by previous generations to give their families a better life than the one they had.

 

[Zenith63]

Is the €335k Group A allowance from both parents combined, or can you receive €335k from each parent if they have the money to do it?

Thought it might be interesting to do the numbers on how things play out for average people vs. those who have the money to give to their children during their lifetime -

1. Wealthy parents able to give money during a single child's lifetime:

€3k from each parent from age 1 until parents deaths 60 years later	€360,000
€3k from each parent to child's spouse from age 25 until parents death 35 years later	€210,000
€3k from each parent to child's two children, born when child was 30 until parent death 30 years later	€360,000
First parent dies and leaves €335k to child, €16250 to child's spouse and €32500 to each grandchild	€416,250
Second parent dies and leaves remainder to child, €335k of which will be tax free, €16250 to spouse and €32500 to each grandchild	€416,250
Total tax free transfer	€1,762,500

2. Average people who build up a decent pension but cannot afford to transfer money to their child during their lifetime, no significant savings outside pension so first parent to die leaves everything to the second (as is common).

Second parent dies and leaves remainder to child, €335k of which will be tax free, €16250 to spouse and €32500 to each grandchild	€416,250
Total tax free transfer	€416,250

I wouldn't be in favour of chasing every penny transferred from a parent to a child, particularly things like paying for education and even weddings, or creating a huge admin overhead for small transfers. But to me the example above is very unfair to the second family who will end up paying inheritance tax on anything over €416k, just because they weren't wealthy enough in their lifetimes to hand it over sooner.

The small gift exemption should count towards your CAT lifetime group thresholds in my opinion, even if those thresholds were increased so this all worked out revenue neutral to the exchequer.

 

[Horatio]

By effectively removing this exemption you want to give more tax to Revenue. Removal of these type of incentives act to discourage people trying to better themselves.

Why better yourself to work hard, do without to help your family etc.

Hear, hear!

• Income tax'd.
• Give away some of your remainder & have the recipient pay CAT for the pleasure of receiving it.
• The recipient pays VAT when they spend it.

Urrgh!

 

[Horatio]

We have huge inequality in society.

And a lot of that inequality is inherited.

I would prefer to see people rewarded for their work than for their accidents of birth.

Brendan

A counter point to that could be that you are rewarded for your work when you work. You trade your time & expertise for wages & you're tax'd on those wages.
If your Parents (for example) worked in their generation, were rewarded for it, lived well within their means & have a surplus to provide for their progeny, why should the Tax coffers be the beneficiary of this?

Yes, inequality is inherited, it is also not anything near insurmountable in the Republic of Ireland today. People pull themselves up the socio economic ladder every single day.
Your proposed changes to the CAT will not change the inequality in my mind. They'll just slosh more funds into the exchequer.

 

[Brendan Burgess]

But to me the example above is very unfair to the second family who will end up paying inheritance tax on anything over €416k just because they weren't wealthy enough in their lifetimes to hand it over sooner.

Hi Zenith

And it's potentially much worse.

A farm or business worth €3m can be left without any CAT, though it will use up €300k of the CAT threshold.

Brendan

 

[PMU]

Why better yourself to work hard, do without to help your family etc. Remember this exemption when used is used by the ordinary person.

This is an important point. I think most people make a distinction between inequality that derives from work/enterprise; inequality that derives from inheritance; and inequality that derives from non-economic factors like poor decision making.

 

[Billo]

Is the €335k Group A allowance from both parents combined, or can you receive €335k from each parent if they have the money to do it?

Thought it might be interesting to do the numbers on how things play out for average people vs. those who have the money to give to their children during their lifetime -

1. Wealthy parents able to give money during a single child's lifetime:

€3k from each parent from age 1 until parents deaths 60 years later	€360,000
€3k from each parent to child's spouse from age 25 until parents death 35 years later	€210,000
€3k from each parent to child's two children, born when child was 30 until parent death 30 years later	€360,000
First parent dies and leaves €335k to child, €16250 to child's spouse and €32500 to each grandchild	€416,250
Second parent dies and leaves remainder to child, €335k of which will be tax free, €16250 to spouse and €32500 to each grandchild	€416,250
Total tax free transfer	€1,762,500

2. Average people who build up a decent pension but cannot afford to transfer money to their child during their lifetime, no significant savings outside pension so first parent to die leaves everything to the second (as is common).

Second parent dies and leaves remainder to child, €335k of which will be tax free, €16250 to spouse and €32500 to each grandchild	€416,250
Total tax free transfer	€416,250

I wouldn't be in favour of chasing every penny transferred from a parent to a child, particularly things like paying for education and even weddings, or creating a huge admin overhead for small transfers. But to me the example above is very unfair to the second family who will end up paying inheritance tax on anything over €416k just because they weren't wealthy enough in their lifetimes to hand it over sooner.

The small gift exemption should count towards your CAT lifetime group thresholds in my opinion, even if those thresholds were increased so this all worked out revenue neutral to the exchequer.

In my humble opinion the $335k is a combined figure for both parents. I am open to correction.