The €3,000 annual small gift exemption should be abolished

Brendan Burgess

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I am writing my submission to the Commission on Tax and Social Welfare

I had initially suggested making the €3,000 Small Gifts Exemption from CAT cumulative but now I think it should be completely reformed in light of subsequent comments.

The rationale for exempting occasional small gifts from the administrative burden of CAT is a good one.

However, it has become an integral part of tax planning with wealthy couples giving their children €6,000 a year over a period of 30 years. Thus a person gets €180k of gift tax exemptions on top of the already generous €335k threshold.

Option 1 - Abolish it completely
I can receive gifts up to €16,250 cumulatively anyway. So if I get a gift of €3,000 from a friend, it's exempt from CAT anyway.

If I get €3,000 a year from a parent for 30 years, then my €335k threshold should be reduced by this amount.

The more I think of it, this really is the best option.

An occasional small gift is exempt anyway so the exemption is not needed.
 
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Brendan Burgess said:
The €3,000 small gift exemption for CAT. Make it €3,000 cumulative.
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This one sounds tricky. Am I building up an exemption from the age of 18? At age 50 I can get a gift of €100k from anybody in the state tax free?

I think it would be fair for this to apply between parents and children though, because wealthier people will already be using it throughout their lives to pass inheritance to their children tax free while those less well off in earlier years do not have this opportunity.

Certainly agree on pensions. It’s absolutely bizarre that for my age/past service using an executive pension a company can contribute €750k once-off, but somebody who just started earning enough to begin a pension as an employee can only contribute €23k.
 
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Brendan Burgess said:
OK, make it €1k a year.

The €3k was probably aimed at very occasional gifts and not to be part of systematic tax planning.

Brendan
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It would be very interesting to know the total amount that's given as "€3000k gifts" in the state every year. Something tells me it's a, very, very, large amount. My wife tells me i'm wrong.
 
Surely most people aren't even aware of the 3k CAT exemptions.

Many parents give gifts to children, i.e. house deposit, wedding, and CAT is not considered.
 
noproblem said:
It would be very interesting to know the total amount that's given as "€3000k gifts" in the state every year. Something tells me it's a, very, very, large amount. My wife tells me i'm wrong.
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I hadn't read your No 2 post on this, was just going to add the €1270 CGT too. The other half was reading it and pointed it out to me.

The thing about the €3000 gift is it will help the wealthier people. A couple with 3 children, who also have 3 children each. The older couple could give €3k to their children, and also to each grandchild, and also the spouses of their children. That's a total amount of €30,000.00 to each family tax free every year as it stands now. A lot of money so no real need to make it cumulative.
 
Protocol said:
Many parents give gifts to children, i.e. house deposit, wedding, and CAT is not considered.
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Is this true, that CAT is not required for a gift of a house deposit or to pay for a wedding? How does the revenue deal with these?

I thought that say if I gave my child €21K in 7 years time to use as a house deposit, that she would have to pay tax, but if I gave her €3K per year for the next seven years she would not need to pay tax? My only problem was fretting she would waste it partying, and holidaying in the next few years. She has just finished university where I paid €3K per year in “fees”, so it seemed a good idea to me to keep doing this.

It is true that not a lot of people know about the €3K gift exemption. My mother wanted to give 2 specific grandchildren cash gifts but did not want to exclude any other grandchild. She was also talking about paying specific costs on their behalf, which varied in value so she was fretting about fairness. so I explained to her about the small gift tax exemption. She was delighted that it was all above board and had a specific limit and organised it for them all. All the grand kids late teens, early 20’s were chuffed.
 
People do rely on that €3000 gift exemption, whether it is for college fees etc.

In my case, I get disbelieving looks from my daughter, who went to Uni, when I explain that we can her and her husband €12,000 per year towards their deposit without tax liability. The financial education in schools in this country is abysmal.

BTW, tax has been paid on that gift already, I think it should be at least €7,500 as it has been €3,000 for more years than I care to remember
 
A decision to tax or not to tax capital gains (or indeed anything else) should first pass a test of wheather or not the tax or tax exemption will lead to distortions in capital markets. In this case we are not talking of taxing or not taxing capital gains; we are just changing ownership of savings or earnings. So does it really matter if I retain savings in my account or give it to someone else to retain in their account? Or if I give a proportion of my earnings, on which I have already paid income tax, to another person? I don't see any distortions here.

If I spend my savings I pay taxation on the products or services I buy; and the beneficiary of my gift, if he/she decides to spend the money will pay similar taxes depending on their spending decisions. Likewise, if I retain the savings in my account I pay DIRT, as will the beneficiary if he/she retains it. Again no distortions here.

And this applies regardless of the wealth or income of the donor. Also assuming that recipients are generally less well off than donors, overall such gifts will lead to a redistribution of savings from the better off the the relatively less well off in society.

So why tax savings based on a change of ownership? It's not an exemption; the money will be spent at some stage and then the relavant taxes will be collected.
 
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Parents already spend €6k - €7k per year for children for private schools plus a lot if extras on top, so can’t really see why anybody should get too worked up over this €3k annual exemption
 
I agree, this is earned income. Tax paid at 51%. If I want to gift a child three grand a year then I should be allowed. Why does Brendan feel the need to propose it be eliminated? We all want to minimise tax,and having paid half of income in tax, to try and tax the other half when giving an annual gift is ridiculous.
 
Whilst the thinking on this is well meant people would find ways round it. What's to stop the parent giving the cash in hand in small amounts over the course of the year. Or what is stopping the parent paying for maintenance to the house or car for the child. Respectively I suggest that people would find ways around this very easily.
 
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