Dáil Éireann Debate, Tuesday - 5 November 2024
278. Deputy John Lahart asked the Minister for Finance to clarify the tax implications for both parents and married children in situations where the parents financially assist with home extensions or improvements on the children’s primary residence, including any relevant thresholds or exemptions under current tax legislation; and if he will make a statement on the matter. [44611/24]
View answerI am advised by Revenue that where parents provide financial assistance to their children, including financial assistance to fund an extension or home improvements to the child’s primary residence, such financial assistance may come within the scope of Capital Acquisitions Tax (CAT).
CAT is a tax on gifts and inheritances payable by the person receiving the gift or inheritance (the beneficiary). CAT is calculated by reference to the value of the property received. A person receives a gift for CAT purposes when they receive a benefit, otherwise than on a death, and do not provide full consideration for that benefit.
For CAT purposes, the relationship between the person giving a gift or inheritance (i.e., the disponer) and the person who receives it (i.e., the beneficiary) determines the maximum amount, known as the “Group threshold”, below which CAT does not arise.
There are currently three Group thresholds:
• Group A threshold (currently €400,000) applies, inter alia, where the beneficiary is a child (including an adopted child, stepchild and certain foster children) of the disponer. Parents also fall within this threshold where they take an absolute inheritance from a child.
• Group B threshold (currently €40,000) applies where the beneficiary is a brother, sister, nephew, niece or lineal ancestor or lineal descendant of the disponer.
• Group C threshold (currently €20,000) applies in all other cases aside from gifts and inheritances between spouses and civil partners which are fully exempt from CAT.
Any prior gift or inheritance received by a beneficiary since 5 December 1991 from within the same Group threshold is aggregated for the purposes of determining whether any tax is payable on a benefit. Where a beneficiary receives gifts or inheritances that are in excess of the relevant Group threshold, CAT at a rate of 33% applies on the excess.
In addition to the Group threshold, a person may receive gifts up to a total value of €3,000 from any person in any calendar year without having to pay CAT (the “small gifts exemption”). Gifts within this limit are not taken into account in computing tax and are not included for aggregation purposes. If both parents make gifts to their child and to their child’s spouse, both the child and their spouse can avail of small gift exemptions to the value of €6,000 in the particular calendar year.
In the scenario presented, the child will take a gift from their parent(s) in respect of the financial assistance received to facilitate an extension or improvements to their primary residence. CAT will be payable by the child at a rate of 33% to the extent that their gift, when aggregated with any prior gift or inheritance received since 5 December 1991, exceeds the Group A threshold.
Depending on the circumstances, the child’s spouse may also take a gift from their parents- in-law in respect of a share of the financial assistance provided. CAT would then be payable by the child’s spouse at a rate of 33% to the extent that their gift, when aggregated with any prior gift or inheritance received since 5 December 1991, exceeds the Group C threshold.
In addition, where the financial assistance is provided in the form of an interest free or low interest loan, the value of the interest-free portion of the loan may be chargeable to CAT.
If the individuals the Deputy refers to require a more definitive reply, they can present full details of the facts of the case to Revenue through the MyEnquiries facility in myAccount or by contacting the National Capital Acquisitions Tax (CAT) Unit at 01 738 3673.
