Revenue acting on deposits handed from parents

jon1981

Seems the revenue are going to start clamping down on the gift of deposits from parent. Seems to be a counter measure to the 20% deposit rule being introduced to reduce the advantage wealthy parents and their offspring have over other buyers in the market.

Apparently the tax legislation has always been in place but rarely acted on.

The_Morrigan

Have you a link for this?

evolving_doors

jon1981 wrote: »

Seems the revenue are going to start clamping down on the gift of deposits from parent. Seems to be a counter measure to the 20% deposit rule being introduced to reduce the advantage wealthy parents and their offspring have over other buyers in the market.

Apparently the tax legislation has always been in place but rarely acted on.

Id be hesitant of claiming 'wealthy'... some parents use their last bit of savings or re-mortgage their own house to help their kids.

If you are really 'wealthy' you can easily find ways to avoid tax on gifts to offspring...

Yet another strike against the middle-income group trying to eek out a living.

athtrasna

If the legislation has always been there then I see nothing wrong with it being acted upon. The law is the law

jon1981

It was on news talk this morning. I'm sure you'd catch it on the podcast.

The_Morrigan

jon1981 wrote: »

It was on news talk this morning. I'm sure you'd catch it on the podcast.

Try putting information like that in your opening post it's kinda relevant to the discussion you've started.

/Mod.

Kristopherus

How would Revenue know?

Sarn

I heard this mentioned on Today FM this morning, missed the piece though. I would imagine this is just making sure that when a gift is given the appropriate tax is paid.

I think the key part is:
'The first €3,000 of the total value of all gifts received from one person in any calendar year is exempt [from Capital Acquisitions Tax]. This does not apply to inheritances.'

But there is also this:

'Capital Acquisitions Tax is charged at 33% on gifts or inheritances made on or after 5 December 2012 (the rate was formerly 30%). This only applies to amounts over the group threshold. For example, if you have received gifts from your parents with a taxable value of €550,000, you only pay tax on the amount over the appropriate group threshold (Group A threshold from 5 December 2012: €225,000). So €325,000 is taxed at 33%.'

Link

'You must make a tax return if the total value of gifts and inheritances you have received in one of the groups, A, B or C, since 5 December 1991 is more than 80% of the tax-free threshold for that group.'

My understanding is that if the benefits received exceed 80% of the tax-free threshold for Group A (where the beneficiary is a child, €225,000) a person is required to make a tax return even though the total amount received is below the threshold. Given that this would be a gift up to €180,000 I don't see this being a problem for the majority. Of course I stand open to correction.

LeinsterDub

Gift? What gift? That was a loan. See they are paying us back (and I give them payment back in cash)

jon1981

Apparently the Sunday business post has covered it. There was talk of looking at the tax free thresholds.

http://tippfm.com/news/news_detail/revenue_to_target_first_time_buyers

maggiepip

I thought you were allowed to recieve cash gifts from a parent up to the amount of 225,000, which falls into group A, as per the revenue website, tax free??

Sala

Very few deposits will reach the threshold for inheritance /gift tax. Even if parents gifted the full 20% deposit on a 300/400k property the gift would be 60/80k.

Rabbo

Its not really fair that these cases are subject to CAT but someone transferring a site (up to one acre) to their child for their primary residence isn't subject to any taxes

Sarn

As mentioned in the Sunday Business Post, this is really to ensure that this eats into your future inheritance and gift threshold. That €30k deposit in 2015 will supposedly be recorded (I don't know how) and taken off any non-taxable portion to increase your tax liability. The only way this is going to happen is if the banks declare it to Revenue.

Grandpa Hassan

And if it's a loan of, say, €50k? With a loan agreement drawn up between the parent and the child?

share_bear

Kristopherus wrote: »

How would Revenue know?

They get notice of all transaction above a certain limit by the bank.

I was just wondering - when people are qualifying for mortgage approval, do they actually have to present evidence of having cash in the bank, or is it sufficient to show it just before drawing down mortgage?

For that matter, if a non-refundable deposit is paid direct to the vendor in cash, is a receipt form the Vendor that the deposit was received, sufficient?

the world wonders

LeinsterDub wrote: »

Gift? What gift? That was a loan. See they are paying us back (and I give them payment back in cash)

Yeah David Drumm tried that one recently, it didn't work out too well for him.

Mrs OBumble

Grandpa Hassan wrote: »

And if it's a loan of, say, €50k? With a loan agreement drawn up between the parent and the child?

If it was a loan, the bank would not be allowed to count it towards the deposit, AFAIK.

The_Morrigan

Mrs OBumble wrote: »

If it was a loan, the bank would not be allowed to count it towards the deposit, AFAIK.

They can and they will. They don't consider loans between family the same as they would other debt.
For instance when I was seeking a moratorium for a few months when I lost my job, I had to fill up a form with all my income and outgoings. I listed the loan repayments to my Dad and they didn't incorporate it into their calculations as they didn't consider it a valid loan.

share_bear

...but wait a minute Morrigan.

Take the new central bank rules + the revenue issue.

Whats to stop a vendor of a house offering to lend to the prospective purchaser a large deposit, say 40,000 in cash. Loan is satisfied by repayment in cash.

Purchasers then immediately hands cash back to vendor in exchange for a receipt for a non-refundable cash deposit on the property the vendor is selling. This also has the off-balance-sheet effect of satisfying the loan.

Vendor sells to Purchaser, probably at an inflated total value.

P.S. Cash probably never actually leave Vendors hands, its a notional and immediate paper transaction only.

The_Morrigan

share_bear wrote: »

...but wait a minute Morrigan.

Take the new central bank rules + the revenue issue.

Whats to stop a vendor of a house offering to lend to the prospective purchaser a large deposit, say 40,000 in cash. Loan is satisfied by repayment in cash.

Purchasers then immediately hands cash back to vendor in exchange for a receipt for a non-refundable cash deposit on the property the vendor is selling. This also has the off-balance-sheet effect of satisfying the loan.

Vendor sells to Purchaser, probably at an inflated total value.

P.S. Cash probably never actually leave Vendors hands, its a notional and immediate paper transaction only.

Not a chance will a bank lend on that. Major red flags if a massive amount of money arrives into an account the bank will intiate anti money laundering procedures .
They also expect a level of regular saving to be visible. If an applicant is getting a lump sum from a friend or parent then they must make a declaration that they have no claim now or in the future over the property.

share_bear

The_Morrigan wrote: »

Not a chance will a bank lend on that. Major red flags if a massive amount of money arrives into an account the bank will intiate anti money laundering procedures .
They amount til so expect a level if regular saving to be visible.

I don't understand.
It is a receipt for a cash transaction that is being presented.
There is no red flag because no bank account is involved.

Are you saying the need to see the cash in a bank account before they will issue approval?

The_Morrigan

share_bear wrote: »

Are you saying the need to see the cash in a bank account before they will issue approval?

Yes

Pawwed Rig

Tax is a self assessment system. Revenue may never know unless you tell them. The reality is that most people in Ireland are honest and are willing to pay their fair (legislated) share. Ignorance is not an excuse under self assessment as you have every opportunity to hire a tax professional to give advice.
For those that want to 'avoid' their obligations then Yes there is a chance that Revenue will never find out. There is also a chance that you will be audited and assessed with interest and penalties many years into the future which could potentially cause you severe stress in your twilight years, never mind the possibility of prosecution.

share_bear

The_Morrigan wrote: »

Yes

So Purchaser lodges it to vendors account, with a contract between them making it a private off balance sheet loan. Since purchase of house clears the loan - we have a loan which is immediately repaid thus legitimately not incurring any tax.

Whats the problem there? I mean for a couple, 20k each giving a total of 40 k - 20 k is not a huge amount for a one off transaction. Why should bank decline?

The_Morrigan

share_bear wrote: »

So Purchaser lodges it to vendors account, with a contract between them making it a private off balance sheet loan. Since purchase of house clears the loan - we have a loan which is immediately repaid thus legitimately not incurring any tax.

Whats the problem there? I mean for a couple, 20k each giving a total of 40 k - 20 k is not a huge amount for a one off transaction. Why should bank decline?

As I already said, anti money laundering procedures would make the bank decline.


Mod Can we get back on topic now please. You're already discussing this in Legal discussion, it's not relevant to the OP.

/Mod.

BrianD3

I've just read the SBP article. Looks like I've been a mug for the last few years recording and declaring my gifts and paying over 120k in CAT to Revenue so far.

SBP article implies that people have been receiving money for cars and houses and not declaring them, Revenue has been turning a blind eye and it was "acknowledged in the tax industry that there were some things that Revenue wouldn't go after".

Even with this new clampdown, it says in the article that someone that has their wedding funded by a parent will not be liable for CAT. I find this amazing and wrong.

Obviously, gifts for house deposits, car and weddings will generally be well below the current parent to child threshold of 225k but gifts received since 1991 and above 3k eat into this threshold. If someone received substantial gifts from their parents and then received an inheritance from a parent putting them over the threshold, I bet that many will "forget" that they received the gifts.

maggiepip

share_bear wrote: »

They get notice of all transaction above a certain limit by the bank.

What is the limit? And where did you get this information that revenue are informed of all transactions above said limit? Could you provide a link? Im genuinely interested as I was always under the impression that it was the interest on large amounts that revenue was informed of, not the deposited amount.

Edit - Apologies I have my question within your quote ^^!

Mrs OBumble

The_Morrigan wrote: »

They can and they will. They don't consider loans between family the same as they would other debt.
For instance when I was seeking a moratorium for a few months when I lost my job, I had to fill up a form with all my income and outgoings. I listed the loan repayments to my Dad and they didn't incorporate it into their calculations as they didn't consider it a valid loan.

Which pretty much proves my point: cash transfers between family members are considered as gifts, not loans, for the purposes of deposits - and by Revenue.

People cannot get out of their gift-related tax obligations by claiming "it was a loan".

The_Morrigan

Mrs OBumble wrote: »

Which pretty much proves my point: cash transfers between family members are considered as gifts, not loans, for the purposes of deposits - and by Revenue.

People cannot get out of their gift-related tax obligations by claiming "it was a loan".

No it doesn't. A gift is not repayable, a loan is.

I repay the equity release my father did for me when I bought. It's not a gift, it wasn't classified as a gift on my application either. But they did have to declare they had no intention of claiming an interest in my property.
The bank do not classify loans between family members as official debt.

Mr. teddywinkles

I went in for mortgage last year. Have very substantial deposit saved. The first question I was asked by her in the bank, was my money a gift. She seemed very concerned when asked. So dunno what that means

maggiepip

Mr. teddywinkles wrote: »

I went in for mortgage last year. Have very substantial deposit saved. The first question I was asked by her in the bank, was my money a gift. She seemed very concerned when asked. So dunno what that means

Probably only concerned as to whether you had demonstrated the means to save it yourself.

ted1

jon1981 wrote: »

Seems the revenue are going to start clamping down on the gift of deposits from parent. Seems to be a counter measure to the 20% deposit rule being introduced to reduce the advantage wealthy parents and their offspring have over other buyers in the market.

Apparently the tax legislation has always been in place but rarely acted on.

A low interest loan. Revenue are fighting an uphill battle

marathonic

Is this not more likely to be a retrospective audit?

What I mean is that, for example, if I received a gift of €30,000 for a house deposit a long time back and, in the meantime, my parent(s) have passed away.

If the inheritance tax was calculated using the full CAT allowance without considering the €30,000 gift, revenue would be fully able to chase me for the tax, penalties and interest on the tax due on the €30,000.

marathonic

ted1 wrote: »

A low interest loan. Revenue are fighting an uphill battle

All they have to do to prove that it wasn't a low interest loan is to prove that the parent hasn't been paying tax on the interest received.

I believe that the legislation even allows for the difference between the interest paid by the child and the market rate of interest, as decided by Revenue, to be classed as a gift from the parent to the child - eating further into the CAT group threshold if this exceeds €3,000 p/a (when bundled together with any other gifts the child may have received in that year).

Susandublin

The key question here is - how would revenue find out? A lot more people doing a lot worse and getting away with it. Keep the head down.

Pawwed Rig

Susandublin wrote: »

The key question here is - how would revenue find out? A lot more people doing a lot worse and getting away with it. Keep the head down.

And sure the Gardai may never find out if you do a bit of drug dealing on the side. A lot more people doing a lot worse and getting away with it. Keep the head down.

Attitudes like this...................:rolleyes:

marathonic

marathonic wrote: »

Is this not more likely to be a retrospective audit?

What I mean is that, for example, if I received a gift of €30,000 for a house deposit a long time back and, in the meantime, my parent(s) have passed away.

If the inheritance tax was calculated using the full CAT allowance without considering the €30,000 gift, revenue would be fully able to chase me for the tax, penalties and interest on the tax due on the €30,000.

My reading of it is as you say. They want to keep tabs on the amount gifted to a child to be taken into consideration should the parents Will that child more than the allowance.

murphaph

ted1 wrote: »

A low interest loan. Revenue are fighting an uphill battle

Agreed. At the end of the day if private parties are willing to hand over cash to other private parties without any formal record then it will be essentially impossible for Revenue to trace.

Parents gift in excess of 3k to kids probably thousands of times a year, none of which is traceable.

cpoh1

If you are receiving a gift from a family member for the deposit for your mortgage the gifter/parent must waive all interest in the money and subsequent property you are purchasing before the bank will sign off on the loan. This has to be a signed letter waiving all interest in the money gifted.

The "low interest loan" bit wont work unfortunately.

Mrs OBumble

Susandublin wrote: »

The key question here is - how would revenue find out? A lot more people doing a lot worse and getting away with it. Keep the head down.

It's called "audit", and you never know when today will be your lucky day :-)

Keep your head down, pray to whatever entity you believe in that no one ever notices or that if they do the penalties aren't too high.

Or contribute to society by meeting your legal obligations, including paying taxes that the government can use to pay teachers, nurses, etc. If you don't like the current legal obligations, use the political process to lobby to get them changed.



To me it's a no-brainer. YMMV.

Larbre34

Pawwed Rig wrote: »

And sure the Gardai may never find out if you do a bit of drug dealing on the side. A lot more people doing a lot worse and getting away with it. Keep the head down.

Attitudes like this...................:rolleyes:

Be careful, the oxygen is a bit thin up there.


If the state has put a revenue structure in place that is prohibitive to the advancement of the main exchequer contributors, i.e. employed private home owners, and those same people are able to arrange a private gift or loan that will not financially benefit them beyond enabling them to be housed, then most people will have little problem with it.

The problem is that the tax legislation needs to differentiate between capital acquisitions and the benefits that will derive from them. The state should recognise that enabling a family to be housed, thereby sparing social housing and welfare resources, is a net benefit to the state in the long run and it should be facilitated.

In any case, any half way useful accountant will create the structure to perfectly legally enable such a transfer.

marathonic

It's a lot easier for Revenue to find out about this than people appear to think. All it takes is a random audit.

For example, I believe Revenue need to be informed about bank transfers of above a certain amount (€10,000 i think). They also have access to a list of purchase prices for houses. Finally, they have access to information about inheritences.

Now, let's say the Revenue decides to get a list of all people who have paid any amount of inheritence tax during the past 10 years.

Then cross reference this list with a list of property purchasers during the last 10 years.

Then get a list of those that the bank have provided details of as having obtained a large bank transfer during the year preceeding the property purchase.

If the revenue get a list of people common to all three lists and perform a tax audit on those that appear on the list, they will surely be able to trace whether that large bank transfer has come from a tax compliant source.

Pawwed Rig

Larbre34 wrote: »

If the state has put a revenue structure in place that is prohibitive to the advancement of the main exchequer contributors, i.e. employed private home owners, and those same people are able to arrange a private gift or loan that will not financially benefit them beyond enabling them to be housed, then most people will have little problem with it.

The problem is that the tax legislation needs to differentiate between capital acquisitions and the benefits that will derive from them. The state should recognise that enabling a family to be housed, thereby sparing social housing and welfare resources, is a net benefit to the state in the long run and it should be facilitated.

In what way is it prohibitive? You can get €225,000 tax free from your parents in your lifetime. You can also get €6,000 per annum tax free form your parents (3K each) which does not count towards the lifetime limit of €225,000. This has nothing to do with social housing but alot to do with individuals who are coming into large amounts of money/assets but still do not want to pay their fair share of tax.

murphaph

Pawwed Rig wrote: »

In what way is it prohibitive? You can get €225,000 tax free from your parents in your lifetime. You can also get €6,000 per annum tax free form your parents (3K each) which does not count towards the lifetime limit of €225,000. This has nothing to do with social housing but alot to do with individuals who are coming into large amounts of money/assets but still do not want to pay their fair share of tax.

To be honest I think Irish CAT rates are punitive and not actually fair at all.

You get an allowance up to a set point (though if an only child say working and renting in Galway inherited his parents' former home in Dublin it would likely be over the threshold and tax would be due. Should a child not be allowed to inherit a single dwelling in an average Dublin suburb that his parents left behind, without facing a tax bill? I think so.) but after you go beyond that point the tax is a flat 33% which is pretty excruciating. Why is it not progressive, increasing in steps from say 5% up to 50%. This is how it works here in Germany anyway.

ZeroThreat

murphaph wrote: »

To be honest I think Irish CAT rates are punitive and not actually fair at all.

You get an allowance up to a set point (though if an only child say working and renting in Galway inherited his parents' former home in Dublin it would likely be over the threshold and tax would be due. Should a child not be allowed to inherit a single dwelling in an average Dublin suburb that his parents left behind, without facing a tax bill? I think so.) but after you go beyond that point the tax is a flat 33% which is pretty excruciating. Why is it not progressive, increasing in steps from say 5% up to 50%. This is how it works here in Germany anyway.

Have to agree with the above. The main problems are that the lifetime limit is far too low in this day and age and (unintentionally) discriminates largely against urban dwellers, while the actual rate is too high, bringing it back to 15 or 20% would be 'fairer' imho. Love how all the lefties here bang on about people not paying their 'fair' share and complaining that there's not enough tax being farmed from the little people to waste on more public sector wastage, quangos and golden pensions. :mad:

Mrs OBumble

I totally agree that the rate is too high and the limit is too low.

But I don't agree with individual avoidance as the mechanism for protesting about this.

Oh - and marathonic's post is pretty much spot on, except that Revenue do very few random audits. Targeting is a wonderful thing, and far more likely to yield results.

murphaph

The lifetime limits were slashed following the crisis, but property prices have rebounded significantly and yet the thresholds have not been adjusted back upwards. It is 225k now from a parent. It was 525k before the crisis began!!

Pawwed Rig

Mrs OBumble wrote: »

I totally agree that the rate is too high and the limit is too low.

I disagree. I think CAT/inheritance is one of the fairest taxes out there. It taxes people on income/assets that they never lifted a finger to earn. There are enough exemptions and reliefs available in addition to the lifetime limits to aid people who would genuinely be put out (see dwelling house exemption). It is really a tax on the wealthy whereas imo people should be encouraged to work for their wealth rather than sit back and reap the rewards their parents sewed. That is a different argument.

At the end of the day where a parent gives a child money for their mortgage there are simple ways to structure it so as the limits are not affected. This will only affect people who have no concept of forward planning.

For example
Mammy gives Junior €3,000 in December and another €3,000 in January.
Daddy does the same thing. There we have €12,000 tax free already that does not affect the lifetime limits.
If Juniors wife does the same thing then the couple has €24,000 towards their deposit.
A couple of 'gifts' from siblings will soon bring that total upto €40-50K

marathonic

Pawwed Rig wrote: »

For example
Mammy gives Junior €3,000 in December and another €3,000 in January.
Daddy does the same thing. There we have €12,000 tax free already that does not affect the lifetime limits.
If Juniors wife does the same thing then the couple has €24,000 towards their profit.
A couple of 'gifts' from siblings will soon bring that total upto €40-50K

Is the €3,000 limit not an overall limit as opposed to a limit to be received from each gift donor as you describe above?

ct5amr2ig1nfhp

I would disagree. I believe that inheritance tax is grossly unfair, in particular at the current rates. In most cases this money has already been taxed. And now we are now burdened with a property tax.

So to sum up, - I pay income tax, <insert various other taxes, VAT etc.> and in the future, inheritance tax and you think that is fair?

Edit: I should add, that in a lot of cases children have lost their family homes as they are unable to pay the inheritance tax. How can anyone believe this is a fair tax?
If our government had any sense or forward thinking they would relax the inheritance tax, allowing a vast amount of savings held by parents to be passed to their children. i.e. get the younger generation spending and stimulate the economy.