We are a retired couple in our late 60s and we have a daughter in her late 20s who is an only child. We are in the fortunate position of having paid off our mortgage when we retired.
We would like to give our daughter the money now to buy a small property and get on the property ladder rather than wait until we have both died for her to inherit. She is the sole beneficiary in our will once we are both deceased.
What are the legal and tax implications of doing this? Does Revenue treat this in the same way as inheritance through probate? Do we need to involve our solicitor in the transaction or have it notarised in some way? Are there any tax implications for us? Are there other issues to be considered?
Ms U.M.
In a world where it is getting increasingly difficult for young people to be able to buy a home – regardless of how far you stretch the definition of “young” – I’m surprised by how few people are thinking along the same lines as you.
Of course, as you note, not everyone would be in the fortunate position of having the sort of money that would allow them to consider the option. But for those who do, it makes perfect sense.
There is a preoccupation in Ireland with making sure we leave something behind for family and/or friends in our wills. It’s great as far as it goes but there is little point standing idly by in life when you might be able to help someone, on the promise that things will be okay after you’re gone.
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I suppose the first thing to do is to satisfy yourself that your daughter intends to stay here in the first place. There’s something of a mass exodus of young people with some money saved, an education complete, a finely developed sense of curiosity and a taste for travel.
Australia seems to be the particular favourite destination right now – despite Sydney being one of the few places in the world to make Dublin look cheap on the housing front. It helps, of course, that sheer numbers mean most people will be walking into much of their old Irish network when they land.
Many of these people will return after a year or two but some will not and you certainly need to be sure where your daughter is likely to be based before considering the best course of action.
Assuming she does stay in Ireland, there is nothing to stop you giving her money now to allow her buy her first home. But yes, there may be some tax issues down the line to consider.
It won’t be an issue on your side. You are looking at gifting her funds from your own taxed income and/or investments and you are at liberty to do whatever you want with that money. Giving some of it to her will certainly not leave you or your husband facing a tax bill. And, no, there is no need for a solicitor to get involved in such a gift.
Initially, at least, it will also have no implication for her – at least for as long as you keep any gift below €335,000. That is the current cap on tax-free gifting or inheritance between parents and any of their children. Anything above that will be liable to tax at 33 per cent.
Once the amount she receives from you exceeds €268,000, she will have to file a tax return to notify Revenue Commissioners that she has passed that amount – equal to 80 per cent of the threshold of what she can receive tax free from her parents – even though no tax is due until she exceeds the €335,000 level.
Obviously, as an only child, it is highly likely that she will inherit more from either or both of you later when you die. And yes, she may well incur a tax charge at that point on that additional inheritance, assuming it brings the total she receives from you over her life to more than the €335,000 limit. But at least she will have received in your lifetime the money that allows her to own her home and you to be happy that you had the good luck to be able to help her on that path.
Second option
If you are really keen to keep as much “wriggle room” in her tax-free limit as possible for that eventuality, it would be possible for you to frame this gift as a loan.
How does that help? Well, you each can gift your daughter €3,000 a year without any tax implications to either side, and it does not count against that lifelong tax-free limit on gifts or inheritances of €335,000. Given you are both in your late 60s, with good health and current average longevity, you could both expect to live for 15 years or more, giving you the capacity to gift her €90,000 or more between you under this small gift exemption.
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While I understand the desire to pay her the money she might need upfront, if treated as a loan, the €6,000 between you could be used as covering interest due on that loan. Interest on family loans must at least match what you could get for the money in a demand deposit account but those rates are still about zero so the €6,000 is effectively taken off the loan capital each year.
Anything outstanding when you both die would obviously be treated as a gift but that sum would have been diminished by then, leaving her more room under the tax-free threshold to inherit without paying tax.
You don’t have to use a solicitor for such a loan agreement but I suggest it would be a good idea, if only to make sure all the necessary provisions are in place.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
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