Gifting tax free to family, even large sums such as €2m. At first glance, this seems impossible and/or undesirable but with smart planning it is possible to avoid all tax burdens on such a gift, legally and legitimately.

In Ireland, the tax landscape, especially concerning wealth transfer, can be a bit like navigating a maze. The culprit? Capital Acquisitions Tax (CAT), with a hefty 33% rate for gifts and inheritances. This is what we are now conditioned to, but it is frustrating when you see that in the USA for example there is no federal inheritance tax! And while there is a federal estate tax, it only applies to assets over $13m, and the bands start at 18% above that level!

But here’s the good news for Irish residents. There are legal loopholes, and we’re about to spill the beans on the ones that can work wonders for many of us.

Enter the CAT thresholds – your golden ticket to tax-free generosity, provided you have the ability and desire to use every one of them!! I’ll outline these thresholds and then outline an example of passing gifts tax efficiently, if you really wanted to!

CAT Thresholds

1. Spouses & Civil Partners: No tax worries here! Feel free to shower your spouse with gifts and inheritance; it’s all tax-free. Most of us are well aware of this one. Even though there is no tax on transfer, there can be lengthy delays in probate, so it is wise and smart to have most of your stuff in joint names, where possible. Pensions can’t be put in joint names of course, but most other assets can be, and it is prudent to do so. It is a bit of a hassle now, but can save a lot of hassle and strain down the road.

2. Group A (Children/Stepchildren): Up to €335,000 – that’s the magic number before the taxman takes notice. Each child or stepchild can receive a lifetime amount of €335k before they must start paying CAT on the excess above that amount. Many people choose to delay any such large gifts to kids until after they die – but if you have the means to do it well before you die, it might be both helpful and beneficial for everyone to gift it while you are alive to see it, and to share in the warm glow!?

3. Group B (Grandchildren, siblings, parent, grandparent): €32,500 is the threshold for this group of loved ones! Some people out there have a wide network of grandchildren for example, so lots of scope to gift potentially large numbers of loved ones in this group. In the unfortunate event where a parent or grandparent survives a child or grandchild, there is a tax free threshold of €32.5k in that instance also. Everything above that level will be subject to tax of course.

4. Group C (Distant Relations): A modest €16,250 here. As Revenue put it, this ‘applies where you, the beneficiary, on the date of the gift or inheritance have a relationship to the disponer not already covered in Groups A or B.’. In essence, this is the threshold that applies to a gift to anyone who is not a spouse, civil partner, son, daughter, parent, grandparent, or sibling.

See more details on revenue CAT page here.

Small Gifts Exemption

In addition to the above amounts to the above relations, you have the ability to make an annual smaller gift. Provided you have the planning and the time, this can be an effective tool to access tax free gifting.

The Revenue calls it the Small Gifts Exemption. In a nutshell, you can receive and/or gift up to €3,000 annually from/to any person without any concern or action required on CAT.

Let’s look at a brief and imaginative scenario!

Your parents are alive and well and have excess cash. Your parents-in-law are alive and well and have excess cash. Your grandparents and your grandparents-in-law are all alive and well and have surplus cash! You have 4 uncles and 4 aunts who are also alive and well and have surplus cash! In theory, there is nothing stopping you receiving €3k from every one of those individuals, so you could be receiving €48,000 every single year that they are each alive, totally tax free. What’s not to love!

The Math Behind the Magic – Fantastic Frank!

So let’s look at a real example of how you, assuming you are the one with the surplus cash and the beneficiaries you want to give some life gifting to.

Your name is Frank, a widower, and you and your beloved late wife reared 4 fantastic children, who have bestowed you with 8 marvelous grandchildren! You have €2.5m of savings and investments, a healthy pension income that comfortably exceeds your expenditure every year.

You have given the ‘odd few quid’ to your kids over the years but nothing significant or regular. Not deliberately, it’s just the way it has panned out. But your kids could do with the cash now as they are all either buying first homes, starting new businesses, putting kids through expensive schools and/or upgrading homes as their families grow. So what do you do!?

Well, first and foremost I recommend that you ensure that you set aside more than enough for yourself and your own future plans and adventures, whatever they may be. There’s little point in looking after everyone else, if it leaves even a faint possibility of cutting you short financially in future years.

So let’s assume you want to live gift everyone in your family circle to the maximum level now, so that they can take possession of it and use it now while they may actually need it, rather than in 20 years when they may not at all need it.

• €335k (Group A) to each of your 4 adult children this year (€1.34m gone!)
• €32.5k (Group B) to each of your 8 grandchildren this year (€260k gone!)
• €16.25k (Group C) to each of your 4 sons/daughters-in-law (€65k gone!)

You have straightaway gifted €1,665,000 to your kids, kids-in-law and grandkids – quick as a flash! There is no CAT to be paid by anyone on these gifts, every cent has gone to your intended recipient. But you still have c€400k that you are certain you will never need (of the €2.5m). Rather than give that now as a lump sum which would be taxable once received by any of the 12, you form a plan. You will use the aforementioned Small Gift Exemption to transfer that to your loved ones.

• €3k gifted to each of the 16 individuals each year (€48k gone in 2023)
• Gift that same €48k to each individual for the next 7 years after this year

Doing the above would allow you to gift the entire €2m that you decided to gift, totally free of tax.

There are a few important aspects to be aware of if considering doing so, for your own and their benefit:

• Any other inheritance they receive in future will be subject to the prevailing CAT rate (currently 33%) which may be higher or lower than 33%
• Your family home and/or pension assets may be a large inheritance in future, all of which would be subject to tax if the beneficiaries have already used up their lifetime limit
• Please please ensure that you are not leaving yourself short – one never knows what they might need future cash for, don’t box yourself into a nasty corner!
• Careful planning for any future care needs should be considered. For example, if you ever decide to apply for Fair Deal scheme, it can be cost beneficial to have given away excess cash previously, depending on when you gave it away!
• Depending on the conversations with your family, other approaches may be more advantageous and ought to be explored. Structures such as a Family Partnership can be beneficial in some situations, to enable you to retain control while also passing on future value appreciation. Depending on the investment, Growth Shares may be beneficial. Seek tax advice before taking action.

Final Thoughts – Gifting tax free to family

You may be of the view that they’ll get whatever is left when you die – and I admire that too. However, if the money is sitting idle and will likely remain sitting idle in a bank current account for decades for example, there may be far more benefit for everyone involved for there to be a discussion and a plan developed to maximise the value for all.

I hope it helps.

Paddy Delaney QFA RPA APA