Should I make a gift to a child now ahead of any reductions in CAT thresholds?

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banchang

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With the widely rumored reduction in these thresholds from their current level of Eur335,000 for children, does it make sense to transfer/gift property & assets up to that value to child now, so that the child ultimately gets the higher lifetime tax allowance benefit before the threshold is dropped ?

Potential downsides ?

Also, would there be CGT arising for the disponer of that property asset even though it has realised zero consideration ?
 
banchang said:
Potential downsides ?
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Potentially. The transfer would have to suit your circumstances first and foremost. Tax should not be 100% driving this decision.

Politically it's difficult to see reductions in the near future (famous last words!). The Taoiseach immediately ruled it out. Sinn Fein's alternative budget proposed a €300,000 parent to child Group A threshold (€335,000 currently) and a CAT rate increase to 36% (33% currently). If they need to form a coalition in the next government with FF/FG, will they need to compromise on this? Who knows. The recent Commission report recommended a whole raft of changes, and yes, a large reduction to the Group A threshold, but even then a lot of the proposals were to be implemented over many years.

So, from a reduction in threshold and/or an increase in the rate of CAT, I'd cool the jets on any transfer before making sure it ticks a lot of other boxes first.

banchang said:
would there be CGT arising for the disponer of that property asset even though it has realised zero consideration ?
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It's a disposal, even though no consideration has been received, and tax legislation will impose market value for the purposes of calculating a capital gain.

Say for instance that Sinn Fein get their way and their proposal is implemented. The gift tax on €335,000 is hardly the end of the world and if there is CGT paid, a credit against the gift tax would be available, potentially reducing the gift tax to nil. I haven't heard of any proposal to get rid of that relief.
 
Agree that you should not allow the tax tail to wag the dog.

If it makes sense to give a gift to your child now or in the near future, do it now just in case the threshold is reduced.

So if you are planning to help a child get on the housing ladder with a gift of €335k, then go ahead.

But if you were not thinking of doing it anyway, then don't do it.

As AAA pointed out, the CAT hit is likely to be low.

AAAContributor said:
if there is CGT paid, a credit against the gift tax would be available,
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Just to be clear on how this works.

If you gift your child a house worth €500k on which you have a Capital Gain of €100k and a CGT liability of €33k

His CAT return would be:
Gift: €500k
Less €335k Threshold A
Less €3k small gift exemption
Subject to CAT: €162k
CAT at 33%: €53k
Less CGT credit: €33k
Net liability of child: €20k

But if you sold a property for €500k and gave him the proceeds, there would be no CGT credit.

Brendan
 
Brendan Burgess said:
Net liability of child: €20k

But if you sold a property for €500k and gave him the proceeds, there would be no CGT credit.
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I agree.

And just to add for completeness, there'd be stamp duty payable on the gift (of the property, not the cash) and the child would have to retain the property for 2 years otherwise the credit for the CGT would be clawed back if they disposed of the asset within two years of the gift.
 
All of this "talk" of children/family inheriting less tax free, will lead to people disposing of assets and giving cash under the table to beneficiaries. In any case, I'd imagine a lot of it is happening already.
 
If there is one thing that Revenue people hate, its inherited wealth.
It means they have not extracted enough tax from you.
You cant talk about gifting family members cash - banks are obliged to report cash withdrawals above 3K.
 
fistophobia said:
If there is one thing that Revenue people hate, its inherited wealth.
It means they have not extracted enough tax from you.
You cant talk about gifting family members cash - banks are obliged to report cash withdrawals above 3K.
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Ha ha, so you think it doesn't happen?
 
BB, in my experience, it does happen.
Its very much down to R. individual's version of CAT interpretation.
 
I had a dispute with them recently.
CAT return - inherited a property from a sibling.
Its category B threshold.
They argued that tax was calculated on the current value of the property of 600K.
That is irrelevant because I am not selling.
However, my sibling died in 2013.
I had it back-valued at 350K.
I have only got around to dealing with it now.
 
First of all, Revenue interprets the law, it does not make it. It's perfectly valid for Revenue to take a view different to that of the taxpayer. It's also perfectly valid for Revenue to make a mistake. There is an appeals process in place if you don't agree with their interpretation.

I would say that taxpayers make more errors than Revenue.

You inherited something in 2013 but only got around to dealing with it "recently".

I don't know the rules. But I hope that they cater for someone who does not become liable for tax until 8 years after the death.

But maybe in your case, the Executor has a big CGT liability on the increase in value between 2013 and "recently".

Brendan
 
Thanks for prompt & detailed replies. This website is a truly wonderful resource.

Do I read this right that fathers CGT liability can be offset by the child in their separate taxpayer CAT calculation? How/why does that work ?
Brendan Burgess said:
Agree that you should not allow the tax tail to wag the dog.

If it makes sense to give a gift to your child now or in the near future, do it now just in case the threshold is reduced.

So if you are planning to help a child get on the housing ladder with a gift of €335k, then go ahead.

But if you were not thinking of doing it anyway, then don't do it.

As AAA pointed out, the CAT hit is likely to be low.



Just to be clear on how this works.

If you gift your child a house worth €500k on which you have a Capital Gain of €100k and a CGT liability of €33k

His CAT return would be:
Gift: €500k
Less €335k Threshold A
Less €3k small gift exemption
Subject to CAT: €162k
CAT at 33%: €53k
Less CGT credit: €33k
Net liability of child: €20k

But if you sold a property for €500k and gave him the proceeds, there would be no CGT credit.

Brendan
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.
 
banchang said:
Do I read this right that fathers CGT liability can be offset by the child in their separate taxpayer CAT calculation? How/why does that work ?
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Yes.

Let's take an example. In the interests of simplicity, let's forget about CGT annual exemptions, small gift thresholds and the CAT Group A, B & C thresholds to understand why a credit would be available.

You acquire an asset for next to nothing - a piece of artwork in a car boot sale. It's subsequently discovered that you have a Picasso on your hands with a market value of €100,000. There's a gain of €100,000 and a potential CGT liability of €33,000 (33% of the gain) if you were to dispose of the asset via a sale or a gift.

You decide to gift the asset to somebody else. The CGT payable by the disponer would be €33,000. The beneficiary would have to pay CAT of €33,000 (33% of the value of the gift) in the absence of a credit.

Therefore on the same event - the transfer of the asset - there is total tax payable of €66,000. Quite a hit.

Therefore, where a transaction gives rise to two taxes, CGT & CAT, the law recognises the double taxation and provides a credit as a result.

More information can be found here:


Capital Acquisitions Tax Consolidation Act 2003, Section 104

The electronic Irish Statute Book (eISB) comprises the Acts of the Oireachtas (Parliament), Statutory Instruments, Legislation Directory, Constitution and a limited number of pre-1922 Acts.
www.irishstatutebook.ie
 
AAAContributor said:
Yes.

Let's take an example. In the interests of simplicity, let's forget about CGT annual exemptions, small gift thresholds and the CAT Group A, B & C thresholds to understand why a credit would be available.

You acquire an asset for next to nothing - a piece of artwork in a car boot sale. It's subsequently discovered that you have a Picasso on your hands with a market value of €100,000. There's a gain of €100,000 and a potential CGT liability of €33,000 (33% of the gain) if you were to dispose of the asset via a sale or a gift.

You decide to gift the asset to somebody else. The CGT payable by the disponer would be €33,000. The beneficiary would have to pay CAT of €33,000 (33% of the value of the gift) in the absence of a credit.

Therefore on the same event - the transfer of the asset - there is total tax payable of €66,000. Quite a hit.

Therefore, where a transaction gives rise to two taxes, CGT & CAT, the law recognises the double taxation and provides a credit as a result.

More information can be found here:


Capital Acquisitions Tax Consolidation Act 2003, Section 104

The electronic Irish Statute Book (eISB) comprises the Acts of the Oireachtas (Parliament), Statutory Instruments, Legislation Directory, Constitution and a limited number of pre-1922 Acts.
www.irishstatutebook.ie
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Thanks for comprehensive reply.
 
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