My father has recently entered a nursing home. The weekly payment is €1,200. My father will not qualify for the Nursing Home Support Scheme as he has substantial savings. However, his pension is low and he does not pay income tax.
If my father was to gift me the cost of the nursing home for a year to me and I pay the nursing home fees could I then claim tax relief on the fees?
Mr P.McD., email
Whoever pays the cost of nursing home fees is entitled to claim tax relief, whether it is on their own account or for someone else.
If you are paying the cost, then you can claim the relief, which is granted at the highest rate of income tax that you are paying yourself.
If the money for that is coming from your father’s savings, there is a separate issue of gift tax (capital acquisitions tax). As I’ve written several times over recent weeks, you are entitled to receive up to €3,000 a year free of any gift tax in any calendar year. Clearly, this will not get you very far in the face of weekly fees of €1,200. Anything above the €3,000 will count towards your lifetime limit on gifts or inheritances from a parent.
The limit here is €225,000, and that will include any other gifts above the €3,000 annual exemption that you have already received from either parent, and any inheritance if your mother has already passed away.
The gift tax rate you will be paying on much of the money you receive from your father for the purpose is 33 per cent while the relief you will be able to claim is at up to 41 per cent.
Normally you will claim the relief at the end of the relevant tax year but it is possible in certain circumstances for PAYE workers to secure the relief through the PAYE system throughout the year. You will need to check with your local tax office for the details.
Gift tax position of son living in the US
In 2007, while he was still living in Ireland, I gave my son €90,000 to help him with his house purchase. He now resides in America since 2011, thankfully in permanent employment. Last year, I gave him a further €160,000 to purchase a house in America.
Should he return to employment in Ireland what will be the tax and inheritance implications?
Mr M.B., Galway Issues of taxation across international borders are always complex and certainly, if he does decide to return home, your son would be well advised to get professional tax advice.
In the US, gift tax is usually an issue for the donor, not the recipient but clearly that is not an issue for you as you are not resident there. As he does reside in the US, my understanding is that your son is supposed to notify the Inland Revenue Service of any gift in excess of $100,000 in any given year, but he should confirm that with his own US tax advisers. As I understand it, he will not have a liability to tax on that money there but, as I say, it is not an area in which I have any detailed knowledge.
If he does come home, he will clearly have already exceeded his lifetime limit on gifts and inheritances he can receive from his parents as you have now gifted a total of €250,000 to him over recent years.
As he was tax resident abroad when he breached that limit, he will not have any immediate liability to my understanding, but he will certainly be liable to capital acquisitions tax at 33 per cent on any further gifts or inheritances from you or his mother in excess of the annual exemption of €3,000.
Savings for son in our accounts
Our son has just turned nine and we want to put a sum in his own savings account equivalent to the €3,000 gift limit from each of us for the past nine years. We have had cash in our own accounts intended for him, but we never segregated the tax free gift each year in his own account.
What is the Revenue position on this? Does there have to be a formal paper trail each year or will they accept that the transfer from our bank account to his includes gifts from previous years that are exempt from tax?
Mr E.T., email
As with most issues on tax, the Revenue clearly likes a little clarity of these things although there is no requirement for a formal paper trail.
Still, I’m not sure they are going to accept the proposition that you have had money in your own accounts destined for him under the annual capital acquisition tax exemption.
Of course, CAT is subject to self-assessment with your son not obliged to notify Revenue until he breaches the 80 per cent threshold on his lifetime €225,000 limit on cumulative gifts and inheritances from a parent, over and above any €3,000 annual exemption.
To be fair to Revenue, the issue is one of genuine intent – was this money always destined for your son, or is it a case that resources are now available and you are looking to backdate the tax free gift tax exemption to his birth.
Clearly the latter is not permitted and that is why, even if not in his name, it would be better if any money being ring-fenced for him was in a dedicated account and not mixed up with other savings, spending or income. You will probably be aware that Revenue has been clamping down on perceived abuse of the capital acquisitions tax system by some parents looking to pass assets on to children, although it is fair to say that the focus is more particularly on people supporting adult children rather than a child of nine.
Ideally, any money destined for your son under the exemption should be put into a dedicated account in his name. I’m conscious that banks will insist on accounts by in joint names of the child and an adult until a certain age (I think it is seven in most cases but I could be wrong).
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
