Getting a cash gift to pay a house deposit - will I have a tax bill?



If my parents give me money for a house deposit – Do I have a tax bill?

The short answer: Probably not, but it is possible. So let’s understand the dynamics at play.


In Ireland, individuals must pay tax on gifts and inheritances via a gifts and inheritance tax, otherwise known as Capital Acquisitions Tax (CAT) at a rate of 33%. This means that if you were to receive a gift/ inheritance of €100,000 for example, then you would owe the tax authorities €33,000. That’s rough right!? But not so fast, there are some exemptions and tax-free thresholds available.


CAT Thresholds

Group A Group B Group C

On or after 9 October 2019 €335,000 €32,500 €16,250

10 October 2018 - 08 October 2019 €320,000 €32,500 €16,250

12 October 2016 - 09 October 2018 €310,000 €32,500 €16,250

14 October 2015 - 11 October 2016 €280,000 €30,150 €15,075

06 December 2012 - 13 October 2015 €225,000 €30,150 €15,075

07 December 2011 - 05 December 2012 €250,000 €33,500 €16,750

Group A Threshold – This tax-free threshold applies to a son or daughter of the person giving the gift/inheritance. In other words, every person can receive a gift/inheritance from their parents up to €335,000 tax free.


Group B Threshold – This tax-free threshold applies to a parent, brother, sister, niece, nephew, grandparent, grandchild, lineal ancestor or lineal descendant of the person giving the gift/inheritance. In other words, every person can receive a gift/inheritance from their children, brother, sister, uncle/aunt, grandchild, grandparent, or lineal ancestors / descendants up to €32,500 tax free.


Group C Threshold – You can receive gift/inheritance up to €16,250 tax free from anybody else not included in A or B above, i.e. a friend.

The most important thing to note from all thresholds above A, B and C is that you only have one threshold, you don’t have one threshold for each person.


Annual Gift Exemption

You should also note that you are allowed to receive a tax-free gift up to €3,000 each year tax-free for every person. This is important to note and can be used very cleverly and effectively.


So, back to the question… If my parents give me money for a house deposit – Do I have a tax bill? So let’s do the math and look at an example.


Example

Mary is a 30 year old Engineer renting in Dublin. She has decided to buy a house in Dublin with her husband Michael. The house costs €480,000 in which the couple as first time buyers need a deposit of €48,000. Mary’s parents (Sean and Angela) generously decide to contribute €15,000 towards the deposit. So the question is, will Mary have to pay CAT at 33% on this?

Answer

If Mary has never received a gift/inheritance from her parents, then it’s likely she hasn’t used any of her Category A threshold (€335,000) yet. Therefore, if she receives €15,000 then she can offset this gift against that so no tax arises. However, there is a clever way to prevent eroding most of this threshold.


As you will note, Mary is entitled to receive a €3,000 gift from each person each year. So, Mary’s parents could give her €3,000 each (i.e. €6,000) in November 2020 and then gift her another €6,000 in January 2021 which would be completely covered by her annual gift exemption. Then if she needed to receive the additional €3,000 (i.e. €15,000 - €12,000 already gifted) she would just reduce her Group A threshold by this amount.


However, Mary’s parents could also give an annual tax-free gift each to Mary’s husband Michael. Therefore, Sean can give €3,000 each to Mary and Michael in 2020, and Angela does the same. They have now received €12,000. Then Sean can give the remaining €3,000 in 2021 and they will receive all the funds completely tax free and without using any of the Group A threshold.


For clarity, the calculation will look like this.

2020 Daughter Son-in Law

Father gifts €3,000 €3,000

Mother gifts €3,000 €3,000

Total €6,000 €6,000 €12,000


Tax Bill Exempt Exempt


2021

Father gifts €3,000

Total €3,000 €3,000


Tax Bill Exempt


Overall €15,000



Note the couple receive the €15,000 without paying any tax or eroding any thresholds. Please note, where the deposit was urgently required, and the couple couldn’t wait until 2021, then the parents would gift the €15,000 as outlined above, €12,000 would be tax free via the small gift annual exemption and the remaining €3,000 would be tax free by reducing Mary’s Group A threshold.


The above logic can be apply where parents gift money towards the cost of a wedding or other scenarios.


#taxfree #taxexemption #gifttax #irishtax


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