Exceeding gift tax threshold due to paying elderly relatives bills

Z

Zico

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Hello,
My wife's parents are elderly but thankfully still managing to live in their own home with some extra help. We are paying all the bills (Groceries, broadband, insurance etc.) which they then repay by cheque a couple of times per year. As this will appear to put my wife over the allowed €6k per year gift tax limit. How do we go about making sure that revenue see these as repayment for bills. We are both PAYE workers so rarely deal with revenue. Is there a particular form that we need to fill in. Also, we are keeping most / all receipts. Thanks, Z.
 
Why would revenue think this was a gift when you have a clear paper trail of you paying the invoice and the parents then paying you back.

Is there any reason a joint account purely for paying bills is not setup? An excel sheet, copies of bills and a joint account work very well.

You don’t need to fill out any form for revenue. You only need to declare to revenue when you exceed 80% of your threshold. And these are not gifts there is no need to involve revenue.
 
If you support a relative you can get tax relief on that as I recall - but if they pay you back then just keep a spreadsheet of this, there is no reason it would be assumed this is a 'gift'.
 
Revenue is not interested in stuff like this. If you get €50k a year and claim it was a refund, they might question it.

MortgageBroker said:
If you support a relative you can get tax relief on that as I recall
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You can get tax relief on any medical expenses paid for yourself or anyone else - they don't even need to be a relative.

But you do not get tax relief on paying normal day to day expenses.
 
That's perfect, thanks so we don't need to worry once we keep all the receipts.

The Joint account idea sounds good, I'll suggest that. Thanks again, Z.
 
MortgageBroker said:
If you support a relative you can get tax relief on that as I recall
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You can claim tax relief for nursing home fees/employing a carer for elderly relatives, separate from regular medical expenses.

You can also make a deed of covenant allowing for 5% of your income to be attributed to the elderly covenantees but it has to be expected to apply for 7 years and the income is assessable on the elderly relatives. It can save money though.
 
You should be able to get a third-party mandate to get access their accounts and make payments, view balances etc without the need to setup a separate joint account
 
Villaines said:
You can also make a deed of covenant allowing for 5% of your income to be attributed to the elderly covenantees but it has to be expected to apply for 7 years
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Can this be done with rental income specifically? That is, could I set up a deed of covenant to pass x% of the rent from a given property to my mother?
 
murphaph1 said:
Can this be done with rental income specifically? That is, could I set up a deed of covenant to pass x% of the rent from a given property to my mother?
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The source of income does not matter. The template only requires you to insert a monetary amount. The limit is 5% of your total income.

You are required to notionally deduct and withhold 20% tax. You get a deduction from the amount of tax and USC you pay.

The recipient is subject to tax and usc on the income. It is assessed collectively with other income of the recipient (e.g. contributory old age pension), however, due to tax credits and standard rate bands, the amount of USC and Tax due by the recipient should be lower.

Of course it's possible that there will be no net tax saving if the recipient has lots of other income sources.

See here: https://www.revenue.ie/en/personal-...venant/covenants-that-qualify-for-relief.aspx
 
Great, thanks for that. Sounds like an interesting option for me. Is there something like an R185 form that I would need to complete and pass to my mother, indicating that I had deducted the 20% tax (and presumably forwarded to Revenue). I presume she would then complete a Form11 and get a tax refund if she only has the state pension otherwise?
 
murphaph1 said:
I presume she would then complete a Form11 and get a tax refund if she only has the state pension otherwise?
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All depends on the value. The State pension is liable to income tax but not PRSI or USC. In theory if that's the only income of the covenantee, then before adding the covenant income, there's no liability due to exemption. But also if it wasn't exempted due to total income being less than €18k, tax credits (personal and PAYE and age credit) would result in no tax being due. There might even be a non-refundable excess credit. However, once you add in the income from the deed of covenant to your mother's total income, it could be that there is actually 20% IT and USC owed by her, so there may be no refund owing from the tax you deducted and paid as part of your return.

Even then, you will potentially have reduced the net income tax rate to 20% (when looked at on a combined basis between you and your mother), and perhaps lowered the USC charge compared to what you would have paid. That's the net benefit unless you're talking about a very low amount that renders it exempt or allows for "marginal relief".

You can do notional calculations this using the "return preparation facility", which allows you to prepare draft Form 11s and computes the tax position.
 
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