Gift splitting for tax efficiency

T

TeddyE

New Member
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7
Hi All,
I've been reading up on CAT and gift splitting but haven't been able to get clarify on the most tax efficient/appropriate treatment for the following situation.

My wife receives a gift cheque in 2023 of €30k from her uncle. Its made out in her name only. She lodges it to our joint current account as all of our banking is in joint names.
She has been fortunate to receive an inheritance 10+ years ago from another uncle. Her lifetime Category B allowance for gifts is therefore used up.

Regarding tax liability I would appreciate some advice on which is the best way forward regarding tax treatment.

A. The simplest and worst case as I see it is that she would owe 30k-3k (annual gift exemption) = 27k * 33% tax = 9k in CAT owed this year.

B. If she lodges the cheque in our joint account has she effectively split the gift and gifted me €15k of the €30k? I therefore should declare a gift of €15k from her uncle. The first €3k is treated as annual gift. I have never received any gifts like this before so have a lifetime allowance (Category C) of €16,250 before tax is due. I can use 12k of my 16,250 lifetime allowance. So no tax due for me. My wife owes 33% tax on (15k - 3k) = 4k CAT owed.

C. Taking B a step further. We have 3 children. If she transfers 3 x 3k of the 30k into bank accounts in each of their names, could that also be treated as gift splitting? i.e. the original source of the gifts to our children is their grand uncle. The balance (21k) is then treated as a gift split between my wife and myself. CAT liability stays at zero for me and reduces to 33% of (10.5-3)= 2.5k for my wife

D. And finally, if C is acceptable, could we chose to split the gift anyway we like within our family to minimize tax liability e.g. kids receive 3 x 3k as above. Use 15,000 of lifetime limit plus my 3k annual allowance = 18k. My wife is gifted the balance of 3k which is exempt. So no tax due at all in this scenario. This feels too good to be true but worth asking.

Many thanks
 
A. is the only valid treatment. It's the gift itself that gives rise to the tax liability. This cannot be ducked or avoided by reallocating it.
 
T McGibney said:
A. is the only valid treatment. It's the gift itself that gives rise to the tax liability. This cannot be ducked or avoided by reallocating it.
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Many thanks.
Presumably if both names are on the cheque that would change the gift to a 50:50 split as per B? Or is it essential to have 2 separate cheques?

Similarly, if it said 'Jane Bloggs & Family' could/should it be split equally among the 5 family members?
Thanks again.
 
Be careful of any shenanigans designed mainly or solely to avoid tax as they may fall group foul of Revenue's anti-avoidance rules.
 
She could possibly repay the 30000 loan back to her uncle. Her uncle could then write out 5 cheques, one to each family member, for 3000 now. Then he could do the same on 1st January 2024.
 
S class said:
She could possibly repay the 30000 loan back to her uncle. Her uncle could then write out 5 cheques, one to each family member, for 3000 now. Then he could do the same on 1st January 2024.
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Might that, like the original scenario, be affected by the gift splitting rules on tax treatment?

How do you calculate CAT?

This page describes how to calculate CAT.
www.revenue.ie www.revenue.ie
 
There should not be a problem because this would be 5 separate gifts, in each tax year. Not one gift split 5 ways.
 
ClubMan said:
Be careful of any shenanigans designed mainly or solely to avoid tax as they may fall group foul of Revenue's anti-avoidance rules.
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Thanks. Treading carefully here. Just trying to tease out the issue. The uncle is frustrated that almost a third of his gift will go to revenue rather than his niece and family. It appears that he could have named all 5 family members on the cheque and minimised the tax due. Or preferably written 5 cheques. Lesson learned.
 
TeddyE said:
The uncle is frustrated that almost a third of his gift will go to revenue rather than his niece and family. It appears that he could have named all 5 family members on the cheque and minimised the tax due.
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Your wife could immediately repay a loan of €12k to her uncle reducing the gift to €18k.

Your uncle could separately gift you and your children €3k each. 4x€3k=€12k.

The only CAT liability is on the €18k gift to your wife.
 
TeddyE said:
Many thanks.
Presumably if both names are on the cheque that would change the gift to a 50:50 split as per B? Or is it essential to have 2 separate cheques?

Similarly, if it said 'Jane Bloggs & Family' could/should it be split equally among the 5 family members?
Thanks again.
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Sorry, this is a discussion forum, not a facility for specific advice.

Otherwise, @ClubMan's caveat about tax avoidance refers.
 
T McGibney said:
Sorry, this is a discussion forum, not a facility for specific advice.

Otherwise, @ClubMan's caveat about tax avoidance refers.
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Noted, thanks. I appreciate the feedback. But the devil is in the detail and I think its worthwhile for the benefit of other forum users to be able to learn from this example rather than ask the same questions or repeat the same mistakes.

I'm not convinced that A is the answer. I have become a beneficiary of the gift. I understood that the beneficiary has the tax liability. That happens to work in our favour in this instance but does that make it wrong? If my wife had her full CAT B threshold available, her liability would be zero in A and I would have benefited by 15k being knocked off our joint loans, mortgage or added to our savings, as the case may be. I could be accused of avoiding tax in that scenario surely?
The Law Society website states
"if a parent gives property to his son who subsequently transfers the property into joint names of himself and his spouse within three years of the first gift, the Revenue Commissioners have made it clear that they may regard this latter transaction as a gift between parent-in-law and daughter-in-law, to the extent of half the property."
Why would this principle not apply to 'uncle gives gift to niece who pays off a lump of her joint mortgage/loans'?
 
Clearly the answer isn’t ‘A’. The Gift-Splitting rules kick-in, which are themselves a form of anti-avoidance. So any talk of general anti-avoidance makes no sense.

Look at this another way via an example:

Someone gets a gift of €19,250 from a stranger. That person lodges the cheque into a joint account that they hold with their spouse, but it transpires that the spouse previously received a €19,250 gift from another stranger, so the Group C Threshold is gone. Then Revenue subject the couple to an Audit. It’s a ‘gotcha’ moment, where the Gift-Splitting anti-avoidance rules kick-in and there’s a tax liability. Having one’s cake and eating it is rarely possible in life, even for Revenue.
 
TeddyE said:
Hi All,
I've been reading up on CAT and gift splitting but haven't been able to get clarify on the most tax efficient/appropriate treatment for the following situation.

My wife receives a gift cheque in 2023 of €30k from her uncle. Its made out in her name only. She lodges it to our joint current account as all of our banking is in joint names.
She has been fortunate to receive an inheritance 10+ years ago from another uncle. Her lifetime Category B allowance for gifts is therefore used up.

Regarding tax liability I would appreciate some advice on which is the best way forward regarding tax treatment.

A. The simplest and worst case as I see it is that she would owe 30k-3k (annual gift exemption) = 27k * 33% tax = 9k in CAT owed this year.

B. If she lodges the cheque in our joint account has she effectively split the gift and gifted me €15k of the €30k? I therefore should declare a gift of €15k from her uncle. The first €3k is treated as annual gift. I have never received any gifts like this before so have a lifetime allowance (Category C) of €16,250 before tax is due. I can use 12k of my 16,250 lifetime allowance. So no tax due for me. My wife owes 33% tax on (15k - 3k) = 4k CAT owed.

C. Taking B a step further. We have 3 children. If she transfers 3 x 3k of the 30k into bank accounts in each of their names, could that also be treated as gift splitting? i.e. the original source of the gifts to our children is their grand uncle. The balance (21k) is then treated as a gift split between my wife and myself. CAT liability stays at zero for me and reduces to 33% of (10.5-3)= 2.5k for my wife

D. And finally, if C is acceptable, could we chose to split the gift anyway we like within our family to minimize tax liability e.g. kids receive 3 x 3k as above. Use 15,000 of lifetime limit plus my 3k annual allowance = 18k. My wife is gifted the balance of 3k which is exempt. So no tax due at all in this scenario. This feels too good to be true but worth asking.

Many thanks
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For the benefit anyone watching this thread, I contacted the National CAT Information Unit in Revenue on the matter and was advised verbally that B is acceptable and appropriate i.e. I become the beneficiary of 50% of the gift from my wife's uncle and I need to declare same.
C is a possibility too but for this I need to provide more detail of our intentions and seek a written response. I will share the response in due course but obviously I'm not a tax expert so people need to seek out their own advice on their specific situations.
 
Gordon Gekko said:
Clearly the answer isn’t ‘A’. The Gift-Splitting rules kick-in, which are themselves a form of anti-avoidance. So any talk of general anti-avoidance makes no sense.

Look at this another way via an example:

Someone gets a gift of €19,250 from a stranger. That person lodges the cheque into a joint account that they hold with their spouse, but it transpires that the spouse previously received a €19,250 gift from another stranger, so the Group C Threshold is gone. Then Revenue subject the couple to an Audit. It’s a ‘gotcha’ moment, where the Gift-Splitting anti-avoidance rules kick-in and there’s a tax liability. Having one’s cake and eating it is rarely possible in life, even for Revenue.
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Agreed. And thankfully Revenue are indicating agreement also. I've sought confirmation in writing.
Just to tease out your example.........
Someone gets a gift from a stranger of €19,250. She could lodge it to her personal account and pay no CAT as she has a €3k annual gift exemption and a €16,250 CAT C lifetime threshold. It must be declared to revenue.
However she lodges it to her joint account with her spouse. Her spouse therefore becomes the beneficiary of 50% of the gift i.e. €9,625. The spouse can use his €3k annual exemption but he has no CAT C threshold left because of an earlier gift/inheritance. He must pay 33% of €6,625 in CAT.
She uses her €3k annual gift exemption and €6,625 of her lifetime CAT C threshold. No CAT due.

The person I spoke to in Revenue CAT section advised that there's nothing wrong with gift splitting. Its not a dirty word as some would imply. There's a set of rules that must be applied and whether that's to your advantage or disadvantage, so be it. Its not ducking or diving or shenanigans. If in doubt seek professional advice, or better still, ask Revenue directly.
 
TeddyE said:
The person I spoke to in Revenue CAT section advised that there's nothing wrong with gift splitting.
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Be careful of going by what Revenue staff tell you. They are sometimes completely wrong and you have no come back if you act on erroneous info that they give you. If on doubt get independent professional advice.
 
ClubMan said:
Be careful of going by what Revenue staff tell you. They are sometimes completely wrong and you have no come back if you act on erroneous info that they give you. If on doubt get independent professional advice.
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Would you say that even about their written clarification or do you mean what they tell you over the phone? Surely I'm on pretty firm ground if they provide a written response to a specific query and I act on it.
 
TeddyE said:
Would you say that even about their written clarification or do you mean what they tell you over the phone? Surely I'm on pretty firm ground if they provide a written response to a specific query and I act on it.
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Both. They may provide information but not advice. And sometimes the info that they provide is erroneous. If in doubt get independent advice.
 
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