Gintax answers Sunday Independent readers’ questions on tax.
Article published on 29 March 2020

TAX ON GIFT TO DAUGHTER

Query:  We have three adult children. Two are married and we have looked after the married ones by way of a €3,000 gift tax over a number of years. Our youngest daughter is resident in the UK and is likely to stay there. We haven't given her any gifts yet as there was a big gap in age. She now wants to buy an apartment in the UK and we are prepared to give her €100,000 toward the apartment. What is the most tax-efficient way to do this - bearing in mind that she may get an inheritance following our death? It was recently suggested to us to give the money as a loan with a repayment of €6,000 per annum, and we could gift her that repayment each year also. What would be the tax implications of such an arrangement for our daughter? Would we be liable for tax on the interest earned on the loan? And is there a more tax-effective way (other than the loan) to gift her the €100,000? Sean, Co Tipperary

Answer: The first €3,000 of yearly gifts received from any person is disregarded for Irish tax purposes. This is a common way of providing for family and value can accumulate fairly quickly in this manner. Your daughter can also receive combined gifts or inheritances up to her tax-free threshold of €335,000 from yourselves without triggering any Irish tax. The gift of €100,000 cash can therefore be made without any Irish tax liability. Unless you foresee giving her further gifts, or an inheritance, which together would exceed the tax-free threshold, the gift can be made without further consideration of tax.

However, to address your point generally, it is not uncommon for parents to provide children with access to cash by means of a loan - perhaps secured on the asset then acquired.

In contrast with a gift, the child will have repayments and other standard loan obligations to the parent as lender.

If the loan remains outstanding on the death of the parent, then the amount (if any) owed at that point will be a taxable inheritance, assuming the will provides the loan will be extinguished.

In this low-interest-rate environment, the provision of loans does not result in significant tax costs - as clearly the returns, either real or deemed, are not significant. If the loan bears market-rate interest, then you would pay income taxes on the interest and if the loan is interest-free, your daughter is deemed to have received a taxable gift of market-rate deposit interest.

The suggestion noted above whereby you agree to finance the repayments would not appear very much like a loan at all - and it could be open to challenge from the Irish Revenue Commissioners who may argue it is just an upfront gift of €100,000. If you decide to provide a loan, then this should be a real one (that is, you should be able to enforce it if you wish), and documentation should be put in place here.