Tax implications of a €40k gift from parents, and then bringing that money to the UK

osullc10

I'm not expecting precise taxation advice from the internet, but maybe I could get an idea...

My parents, who are retired and living in Dublin, are considering giving me a gift of approximately €40,000. I have been living in the UK since 2016 - working and paying my tax there. I would put this money towards buying my first home, in the UK.

What are the tax implications of this, if any? I'm quite clueless, I have to admit. Is there tax payable on a 40k gift from parents? Would that tax be payable to the Revenue in Ireland, or to HMRC in the UK? If there's no Irish tax liability arising out of this, could I then just bring the full amount to the UK without further tax implications? (In effect, the actual gifting of the money would probably be carried out as a bank transfer from my parents' Irish bank account to a bank account in my name - either Revolut or Barclays in the UK.)

Thanks for your insight.

downtheroad

Provided you've never received a previous gift from your parents, you have no tax liability in Ireland on a gift of €40k from them.

It will reduce your tax free threshold from €335k to €301k (after taking the small gift exemption off €3k per person into account).

No idea about tax implications in the UK.

daarmcd

https://www.boards.ie/discussion/comment/121160644#Comment_121160644

The above is correct and you do not even have to inform revenue!

Or to avoid using your CGT allowance just get a loan off them for €42k to be repaid by small gift exemption over next 7 years of €3k per person per year into the loan account.

2024

https://www.boards.ie/discussion/comment/121724469#Comment_121724469

Is that get a loan from the parents and pay them 3k a year back or is it 3k a year loan from them cgt free?

2024

https://www.boards.ie/discussion/comment/121724469#Comment_121724469

Is that get a loan from the parents and pay them 3k a year back or is it 3k a year loan from them cgt free?

DFB-D

https://www.boards.ie/discussion/comment/121724469#Comment_121724469

Ireland

Irish Revenue don't particularly like the write of loans using the small gift exemption. Best to get an accountant or tax advisor to help structure that and still it will carry risk.

There was a case a couple of weeks ago where they rejected the small gift exemption being claimed in a similar way.

It's perfectly within the legislation to use the initial amount against the lifetime exemption and transfer 6k cash per year if there is a future amount expected to be gifted/inherited which exceeds the lifetime exemption.

UK

Need to check against local tax. But in a nutshell, no gift tax unless your parents die within 7 years, in which case portion is added to their estate and taxed as an inheritance.

MrMusician18

https://www.boards.ie/discussion/comment/121729029#Comment_121729029

That was totally different. The parents had claimed they had earmarked funds within their own accounts as a gift for their son over 30 years and only moved funds to the son at the very end. They were not able to provide documentary evidence of this earmarking.

A formal loan agreement all organised in advance should be enough for you to be able to keep your own money

daarmcd

https://www.boards.ie/discussion/comment/121728841#Comment_121728841

Your parents gift you €3,000 each every year using the small gift exemption.

The loan you got from your parents for €42k is to be repaid by small gift exemption over next 7 years

daarmcd

https://www.boards.ie/discussion/comment/121729029#Comment_121729029

revenue do not need to be notified about the small gift exemption

DFB-D

https://www.boards.ie/discussion/comment/121729659#Comment_121729659

What I wrote has nothing to do with informing Revenue?

DFB-D

https://www.boards.ie/discussion/comment/121729258#Comment_121729258

I would categorical state it is entirely relevant how Revenue view the small gift exemption. They are prepared to challenge "arrangements".

On this occasion Revenue's argument that there was no documentation & seperate bank account was successful, on your structure, they are probable to argue a loan where there is no intention to pay it back, is a gift, not a loan. I deal with Revenue intervention cases frequently and they regularly state substance over form arguments.

Look I'm sure you mean well, but you've probably not gone through an audit to determine what should work or and in that case, it is purely conjecture. There are alternatives which are 100% risk free, which is to actually gift 3k per year and within the thresholds with proper planning. And I am fairly certain you haven't been audited on this point, as you haven't mentioned the CAT which would be due on the forgone interest if you were successful.

MrMusician18

https://www.boards.ie/discussion/comment/121730425#Comment_121730425

I'm fairly sure that the OP needs the cash now and not in 10 years. Ideally this would have been put in place years ago for them but I suspect opportunity has been missed.

All the OP needs is a structured loan arrangement where they make a scheduled payment including appropriate interest payment and it is subsequently returned to them. Revenue challenge lots of things but as long as it is documented properly at the time and not retrospectively they won't beat you.

Admittedly, the problem with it being described as a loan is that you have to declare it as a loan on a mortgage application.

DFB-D

https://www.boards.ie/discussion/comment/121730483#Comment_121730483

“All you need to do" is get competent tax advice.

Right, so the great tax dodge is now to get a loan and actually repay it with interest? Or do you still mean annual loan forgiveness? I have more points you overlooked, but it seems I am just enabling you to continue with this fantasy.

Alternatively, the OP actually uses the threshold and plans future gifts (if any) over time. All in compliance.

MrMusician18

https://www.boards.ie/discussion/comment/121730786#Comment_121730786

It's not tax dodging, it's being tax efficient. Yes, effectively this requires the loan repayments to be gifted back to him annually as he repays off the loan. If he "pays back" a total of €60000 (6000 for ten years assuming that he has a partner) that will cover the principle+interest

It means he has access to the full amount up front without the associated tax bill.

DFB-D

https://www.boards.ie/discussion/comment/121730901#Comment_121730901

This is silly stuff now at this stage, I am a CTA and have told you in no uncertain terms revenue don't like such transactions and that was even before the introduction of anti-avoidance legislation which directly catches this type of transaction.

This is not something you can DIY and there are serious consequences for the OP or anyone else who follows this nonsense. I mean you argued that Revenue wouldn't beat you? Based on what evidence? No more messing and directly support with evidence please..

DisgustedTunbridgeWells

There will be no tax liability right now. When it comes to your overall inheritance in the future it will be factored in then and obviously you may have tax to pay depending on what the upper limit is at that time. Your mortgage provider may require a letter from your parents which states that it is a gift and they forgo any interest in your property. This may be important - if you say it is a loan from your parents ( to try and avoid future tax liabilities on your inheritance as has been suggested), the mortgage provider will factor in the repayments of this "loan" and you may not be able to borrow as much as you want to. The upper limit for inheritance before paying any tax is likely to stay very generous - today a gift of 40,000 will still leave a 285,000 potential inheritance with no tax liability.

naughtysmurf

How do revenue become aware of these types of private account to account gifts from parents to children in the first place, are the banks obliged to inform revenue of these transfers? Just wondering

DisgustedTunbridgeWells

If / when you inherit from a parent, revenue require you to sign a statement as to whether or not you have received gifts from that parent in the past and for how much. At that point your liability or not for inheritance tax is calculated.

Widdensushi

A lot of good answers, maybe I missed it but out of interest for someone like the op eight years in UK is it clear whether it's UK rules or what is the threshold,is it where the gifter or the giftee is resident whose rules apply.

naughtysmurf

https://www.boards.ie/discussion/comment/121732063#Comment_121732063

Ok and if during the probate of say your late mothers will, let’s say your father died five years earlier than your mother & everything transferred to your mother at that time & you previously received a gift of say 40k twenty or thirty years ago & you sign a statement saying no gifts received, do they actually investigate your statement & every similar statement signed each year?

DisgustedTunbridgeWells

If you sign a declaration I imagine revenue accept it at face value. There is no way they can acertain whether it is accurate and why would they bother anyway, bigger fish to fry ! As regards being a UK resident but an Irish domicile, inheritance tax is paid in Ireland on Irish inheritances, but only if you are over the exempted limit of course, currently 325k

daarmcd

https://www.boards.ie/discussion/comment/121731669#Comment_121731669

Small Gift Exemption

Gifts you receive up to the value of €3,000 from any person in a calendar year are exempt from Capital Acquisitions Tax (CAT). This means that you may take a gift from several people:

• in the same calendar year
• and
• the first €3,000 from each disponer is exempt from CAT.  

Gifts of €3,000, as outlined above, are not taken into account in computing tax and are not included for aggregation purposes. 

This small gift exemption applies only to gifts and not to inheritances.

How to claim the exemption

A CAT Return is not required to claim the Small Gift Exemption for annual gifts of up to €3,000. 

naughtysmurf

https://www.boards.ie/discussion/comment/121732241#Comment_121732241

I’ve no experience of this type of situation but I’d imagine that’s what does happen

DFB-D

https://www.boards.ie/discussion/comment/121732497#Comment_121732497

What is the point of that?

daarmcd

https://www.boards.ie/discussion/comment/121732745#Comment_121732745

You said

This is silly stuff now at this stage, I am a CTA and have told you in no uncertain terms revenue don't like such transactions and that was even before the introduction of anti-avoidance legislation which directly catches this type of transaction.

DFB-D

https://www.boards.ie/discussion/comment/121733999#Comment_121733999

Yes, I did. Do you understand why you cannot issue a loan & forgive annual amounts to avoid CGT or to preserve threshold?

daarmcd

Small Gift Exemption.

In addition to this €335,000 tax-free threshold, the first €3,000 of gifts to a child in any year is

exempt from CAT under the annual small gifts exemption. This means that each parent can

give a gift to a value of €3,000 to a child (or to anyone else) each calendar year without any

CAT charge arising.

Two parents can make gifts to a child to the value of €6,000 in any year

free of CAT. Indeed, two parents could, if they wished, gift €12,000 in total each year to each

son or daughter and their respective partner (e.g. fiancée, fiancé, daughter-in-law, son-in-law)

free of CAT.

There is no obligation on a beneficiary of a gift to spend it in the year it is received. Gifts can

be accumulated by the child after receipt to meet future expenditure e.g. to meet a deposit on

a house.

Gifts which qualify for the small gifts exemption do not reduce the parent to child tax–free

threshold of €335,000 – gifts in excess of the small gifts exemption reduce the threshold after

taking the exemption into account.

daarmcd

Small Gifts Exemption

Both parents gift €3,000 to their child each year for 10 years, which the child saves. This

amounts to €60,000 after 10 years. This amount can be used as the child wishes and is not

subject to CAT – as the annual €3,000 small gifts exemption from each parent for each of the 10

years is not exceeded.

In addition, the €335,000 lifetime tax-free threshold is preserved intact for use against larger gifts

or inheritances.

daarmcd

The Government has stepped back from planned changes to the tax treatment of family loans that could eat into tax-free thresholds on inheritance.

Until now, the cost of borrowing money from a bank or credit union has been the benchmark rate available on savings in an Irish bank now hovering around zero, the Finance Bill had looked to change the benchmark.

Known as the Bank of Mum and Dad, such low-interest loans are frequently used by families looking to give a financial hand-up to children when it comes to big ticket purchases, such as cars, home purchase or renovations.

Although tax law does not oblige family members to charge one another interest on loans, the value of the interest that the parent forgoes by lending the money rather than saving it has been seen as a taxable benefit.

DFB-D

https://www.boards.ie/discussion/comment/121734869#Comment_121734869

Did you use AI? Bizarre reply.....

Otherwise, get to the point if you have one. What makes you think Revenue will allow you to treat a gift as a loan?

daarmcd

This may be worth exploring in the situation where you wish to gift a larger sum to children, for a particular need that they have. Is there any reason that you could not give a Loan of the money to your child, documented in a Loan Agreement?

Per current Revenue rules, this inter-family loan ought to have an interest rate applied equivalent to the rate you would otherwise receive had you the money on deposit (which is almost zero!). This loan, for illustration, is €150,000, paid to your daughter and her partner. It is to be repaid to you at a rate of €12,000 capital per year, and therefore to be repaid in 12.5 years.

Is there anything to stop you giving that loan of €150,000, and then each year gifting €12k to the couple, who in turn repay you €12k per year capital, plus a few euro interest per current deposit rates? An interesting approach which does not appear to over-step any rules.