Tax Implications of Financial Gifts to your Children

The housing crisis has significantly driven up property prices, making it increasingly difficult for young people to save for a deposit on their first home, especially with rising rental costs and the general cost of living crisis. As a result, many parents want to support their adult children financially now, when they need it most, rather than waiting until an inheritance, which may come much later due to increasing life expectancy.

We frequently receive inquiries about how parents can provide financial gifts to their children and the potential tax implications of doing so.

 

What is Gift Tax in Ireland?

This is a tax that is liable by the recipient, if the gift is above the tax-free threshold.   In Ireland all gifts fall under Capital Acquisitions Tax (CAT) which also applies to inheritance.

 

Lifetime Gift Exemption Limit

Everyone in Ireland has lifetime limits regarding to how much gifts or inheritance that they can receive before incurring a Capital Acquisitions Tax (CAT) liability. These thresholds are broken into different groups:

 

Current CAT thresholds (from 2025)

Group A €400,000	Applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor children of a deceased child of the disponer.  Parents also fall within this threshold where they take an inheritance of an absolute interest from the child.
Group B €40,000	Applies where the beneficiary is a brother, sister, niece, nephew or lineal ancestor of lineal descendant of the disponer.
Group C €20,000	Any relationship not in Group A or B.

 

Under current legislation, parents can gift or bequeath up to €400,000 to a child tax-free under the Group A threshold before Capital Acquisitions Tax (CAT) applies. This threshold is a lifetime threshold and is cumulative, meaning all gifts and inheritances received since December 5, 1991, count toward the lifetime limit. Any amount exceeding this threshold is subject to CAT at a standard rate of 33%.

 

Maximizing the tax-free threshold can result in savings of up to €132,000 (33% of €400,000) for a child receiving a total of €400,000 from a parent. If this threshold is surpassed, Capital Acquisitions Tax (CAT) is payable on the excess amount.

 

To ensure the validity of a gift, ownership of the funds must clearly transfer from the giver to the recipient, typically by depositing the money into a bank account in the beneficiary’s name.

 

If your child has a partner, it is important to demonstrate that the gift is intended solely for your child, to avoid potential tax implications for their partner. This can be done by transferring the funds into an account held exclusively in your child’s name or issuing a cheque payable only to them.

 

Gifting to help with a property purchase

In the case’s where a parent is making a gift for a property purchase, lenders will require a gift letter from the donor, confirming the amount gifted, the donor’s name, and a signed declaration stating that the beneficiary is not required to repay the money, and that the donor has no claim on the property.

Additionally, parents can gift up to €20,000 tax-free to their child’s partner, provided they can demonstrate that the gift is solely for the partner’s benefit. This gift would fall under the Group C threshold. It should be noted that this is also a lifetime limit so the partner would incur Capital Acquisitions Tax (CAT) if they were to receive further Group C gifts in the future. They could also utilise the annual small gift exemption on top of this (see next section).

 

 

Annual Gift Exemption or Small Gift Exemption. 

The small gift exemption, though seemingly modest, can have a significant impact on estate planning over time. This exemption allows individuals to gift up to €3,000 per recipient per calendar year without incurring Capital Acquisitions Tax (CAT). For couples, this means parents or grandparents can jointly gift €6,000 to each child, grandchild, or any other person, including spouses and partners.

 

For parents, this translates to a potential annual gift of €12,000 to a child and their partner, providing valuable support for a house deposit or a financial head start in life.

 

There is no requirement for these gifts to be spent within the year they are received, allowing them to accumulate over time into a substantial tax-free sum. This highlights the importance of strategic planning and utilizing all available reliefs as part of an inheritance plan. Additionally, these exempt gifts do not count toward the tax-free threshold, ensuring they do not contribute to any future tax liability. This an important tool that can be used in family wealth transfer planning.

 

CAT Exemptions and Allowances

• Small Gift Exemption – Up to €3,000 per recipient per calendar year is tax-free and does not count toward lifetime CAT thresholds.
• Normal Living Expenses – Payments for a child’s education, healthcare, or maintenance may be exempt if considered reasonable.
• Wedding Expenses or family function Expenses - A parent could pay for wedding costs as this would be considered reasonable expenditure as a family function and would not lead to any liability to gift or inheritance tax. It should be noted that a monetary gift to a child would need to be within the normal CAT limits.
• Spousal Exemption – Gifts between spouses or civil partners are completely exempt from CAT.
• Non-Domiciled Individuals - If a person is non-domiciled in Ireland (meaning they don't consider Ireland their permanent home), they can be exempt from paying Capital Acquisitions Tax (CAT) on gifts and inheritances from non-Irish sources for the first 5 years of their residence in Ireland

 

FAQ regarding Gifts

What Counts as a Gift in Ireland?

In Ireland, a gift is any transfer of money, property, or assets where the recipient (the beneficiary) does not provide full payment or equivalent value in return. Gifts are subject to Capital Acquisitions Tax (CAT) if they exceed the applicable tax-free threshold.

Common Types of Gifts:

1. Monetary Gifts – Cash given to a person, either as a lump sum or in smaller amounts over time.
2. Property or Land – Transferring ownership of a house, apartment, or land without receiving full market value in return.
3. Investments & Shares – Gifting stocks, bonds, or other investments.
4. Personal Assets – High-value items such as cars, jewelry, or artwork given without payment.
5. Forgiven Loans – If a loan is given and later written off (not repaid), it may be considered a gift.
6. Discounted Transactions – Selling an asset (e.g., property) for significantly less than its market value can be considered a partial gift.

 

Does it matter when you give a gift?

Yes, the timing of a gift does matter, particularly when it comes to Capital Acquisitions Tax (CAT) in Ireland. Here's why:

1. Cumulative Gift Tax Thresholds

• The value of gifts is cumulative, meaning all gifts you give to a person over time count toward the tax-free threshold.
• If you give multiple gifts over several years, the total value of those gifts will be added up to determine if the recipient has exceeded the tax-free threshold (e.g., €400,000 for children under Group A).

 

2. Small Gift Exemption

• The small gift exemption allows up to €3,000 per recipient per year to be gifted without incurring CAT.
• This exemption resets annually, so giving a gift in a new year can potentially help reduce the overall tax liability on gifts given to the same recipient.

 

3. Impact on Inheritance Planning

• Timing also plays a role in estate planning. Gifting earlier in life may reduce the value of your estate, potentially lowering inheritance tax for your beneficiaries. For example; property or shares that are expected to grow in value could be gifted now at the lower value and then the future growth would be in the children’s name without further eating into the child’s CAT threshold.
• However, gifting large amounts too early may have tax implications, and it’s important to consider lifetime exemptions and gift tax rules when planning gifts over several years.
• Financial advice should also be sought to show the impact over a lifetime of giving a large gift to ensure it is affordable. Cash flow modelling is an effective way to measure the impact of a large gift.

 

4. CAT Return and Payment Deadlines

• CAT returns must be filed for gifts exceeding the tax-free threshold. If a gift is made late in the year, it could require filing in the following year, and the deadline for payment is 31 October of the following year.
• Revenue must also be notified if a person uses up 80% of any of their CAT thresholds.

 

How can I legally minimise tax when gifting?

Minimizing inheritance tax (also known as Capital Acquisitions Tax (CAT)) when gifting money involves using various strategies and exemptions allowed under Irish law. Here are some ways to legally reduce or avoid inheritance tax while gifting money:

 

1. Utilize the Small Gift Exemption

• €3,000 per recipient per year can be gifted tax-free under the small gift exemption. This amount does not count towards the lifetime tax-free threshold, allowing you to make multiple gifts each year without triggering CAT.
• If you and your spouse/civil partner both gift €3,000 each, you can give a total of €6,000 per year to a child or other beneficiary without incurring tax.

 

2. Use the Group A CAT Threshold

• The Group A threshold for children (or grandchildren in some cases) is €400,000. This means that you can gift up to €400,000 to your child (or grandchild) over your lifetime without paying CAT.
• Any gift given above the threshold is subject to CAT at a rate of 33%, but gifting smaller amounts over time, using exemptions like the small gift exemption, can help you stay below the threshold.

 

3. Gifts Between Spouses/Civil Partners

• Gifts between spouses or civil partners are completely exempt from CAT. You can transfer assets to your spouse or civil partner without triggering any tax liability.

 

4. Consider Using a Bare Trust

• A bare trust is a straightforward legal arrangement used to hold assets (such as investments) on behalf of a child or grandchild (the beneficiary).

• A bare trust allows you to gift assets to a beneficiary (such as a child or grandchild) while retaining control over how they are managed until the beneficiary reaches a certain age (e.g., 18). This can help to avoid taxes on growth while allowing the beneficiary to receive the assets eventually.
• The child can benefit from the gift immediately, and any increase in value is treated as the child’s, potentially resulting in a lower tax rate due to their younger age.

 

5. Make Use of Exemptions for Education and Maintenance

• Payments for the education, medical expenses, or general maintenance of minor children may be exempt from CAT if considered reasonable. These gifts should be documented as payments for essential needs to ensure they qualify for the exemption.

 

6. Invest in a Life Insurance Policy

• Life insurance policies can be structured so that the payout is made to beneficiaries outside of your estate. This could reduce the value of your estate and help avoid inheritance tax. Certain life insurance policies may also provide specific tax advantages for gifts.

 

7. Spread Gifts Over Time

• Instead of gifting large sums all at once, you can spread the gifts over several years to maximize the small gift exemption and reduce the chances of exceeding the CAT thresholds. By gifting strategically, you may avoid reaching the taxable amount.

 

8. Consider a Family Investment Company

• A Family Investment Company can allow parents to invest assets (such as property or shares) into a company structure. Gifts of shares in the company can then be made to children, potentially taking advantage of lower tax rates or exemptions while retaining control over the underlying assets.

 

9. Establish a Will with Specific Inheritance Plans

• Careful planning of your estate through a will can help you manage the timing and amount of gifts, making sure they align with the available exemptions and thresholds to minimize tax burdens. Work with a solicitor to structure your inheritance plan in the most tax-efficient manner.

 

Contact us

Please do not hesitate to contact us if you are considering making a gift to your children and you wish to assess the affordability of such a gift along with the tax implications or indeed if you are looking at putting an overall estate plan in place.