Mrs H from Dublin saw the recent article in The Irish Times Property supplement which referred to the need for "PGs" - parental gifts - to be made before many young couples can afford to buy their first house. She intends to sell a property and make a gift of £30,000 to each of her four children, but is wondering about the income and inheritance tax implications for herself and her offspring.

The £30,000 gift per child is well within the £185,550 tax free Capital Acquisition Tax (CAT) threshold between parents and children, so there are no tax implications for either party. Where a liability could occur in the future, says Ms Dervilla Whelan, partner at accountants O'Hare and Associates, is in the event that the children inherit from different sources in addition to their parents.

To this purpose, we asked Ms Whelan what would happen if the H children inherited £20,000 from a grandparent two years after receiving their £30,000 gifts from their mother and then inherited an additional £50,000 from their mother 10 years from now.

"Inheritance tax works on an aggregate basis," she explains. "This means that even if the gifts and inheritances you receive during your lifetime are well within the tax-free thresholds, they will all be taken into account when it is being determined whether you should pay any tax or not.

"In the first case of the £30,000 gift, no CAT is payable. But when the £20,000 inheritance from the grandparent is made over, the aggregate capital acquisition is now £49,500 (the first £500 is exempt). The notional tax payable on the total sum is £5,000:

First £29,500 - nil tax;

next £10,000 at 20 per cent - £2,000;

next £10,000 at 30 per cent - £3,000.

"Ten years later when the final inheritance of £50,000 each is received from the mother, the four children will find that their revised tax free threshold is now £185,550, less the original £30,000, but £79,500 which is accounted for by the first £30,000 (less £500) from their mother and this additional £50,000.

"The £20,000 they inherited 10 years earlier from their grandparent is again taken into account for tax calculation purposes.

"The aggregate tax of £5,000 on the current plus previous benefits is cancelled out by the £5,000 aggregate tax that was paid on the previous benefit. There is no additional tax to be paid."

Inheritance tax is complicated and professional advice should always be sought when a gift or inheritance is being planned.

Ms Whelan adds, however, that "because gifts are taxed at only 75 per cent of the rate at which inheritances are taxed, parents and grandparents should give as much as they can as gifts while alive. This tax rate assumes that the donor lives for at least two years after the gift is given".