As you may have seen in the Sunday Times newspaper yesterday, there are changes in the Capital Acquisition Tax (CAT) rules regarding the transfer of assets, money or otherwise from parents to children.
Capital Acquisitions Tax (CAT) is a tax that imposes a charge on individuals who receive gifts and inheritances where the value of the gifts and inheritances exceed that individual's lifetime tax free threshold, which in relation to a parent child relationship is €225,000, as of the 6 December 2012.
I will outline the change briefly but first a quick summary of Capital Acquisitions Tax, which can be either in the form of gift tax or inheritance tax.
Gift tax is charged on gifts taken on or after 28 February, 1974, and Inheritance Tax is charged on taxable inheritances taken on or after 1 April, 1975. An inheritance is a benefit taken on a death and a gift is a benefit taken otherwise than on a death.
The tax is charged on the taxable value of the gift or inheritance. The taxable value is arrived at by deducting any allowable debts and\or incumbrances from the market value of the property making up the gift or inheritance.
Once the taxable value of the gift or inheritance has been determined the amount of tax payable will depend on whether the appropriate tax free threshold has been exceeded. The rates of tax, as of the 6 December 2012, are as follows:
* The threshold amount - Nil
* Excess 33%
The first €3,000 taken as a gift by a beneficiary in any one year is exempt from tax as are gifts and inheritances taken by one spouse or civil partner from the other.
Various other exemptions have been provided for and it is one of these exemptions that the Revenue have now tightened up on as it is often used by well off parents as a means of transferring assets and\or money to their children. It is a rarely used exemption in practice but nevertheless it is a tax avoidance measure all the same, which has been now tightened by the Revenue. Also, the current threshold of €225,000 for a parent to a child (as of the 6 December 2012) means that any transfer would have to be substantial for tax to arise on it. Nevertheless, it has to be considered before any transfer from a parent or child is made as it would affect any future gift or inheritance the child may receives.
Exemption prior to Amendment by Revenue
Section 82 of the CAT Act 2003 exempts from CAT money or money’s worth given by an individual (the parent in this case) during his or her lifetime for the support, maintenance or education of his or her children, his or her civil partner’s children or a person in relation to whom he or she stands in loco parentis, as well as payments for the support or maintenance of a dependent relative under section 466, TCA 1997.
Exemption post Amendment by Revenue
Section 81 Finance Act 2014 has amended section 82 above to confine the exemption of receipts by children (including orphaned children) for the provision of support, maintenance or education to receipts to:
* a minor child of the disponer or of the civil partner of the disponer; or
* a child of the disponer, or of the civil partner of the disponer, who is more than 18 years of age but not more than 25 years of age who is receiving full-time education or instruction at any university, college, school or other educational establishment; or
* a child of the disponer or of the civil partner of the disponer who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself.
I hope you find the above useful and if you have any questions or queries on any aspect of the above, please do not hesitate to contact me.