Small Gift Exemption – Transfer Some Assets When Alive To Secure Tax Savings

Author: Cathal Lawlor,Lawlor Partners Solicitors and Chartered Tax Advisors.

It is always worthwhile for Landlords to have a look to understand whether there are any reliefs which we might claim before the year ends. The small gift exemption is one that is often overlooked. At first glance it is not particularly large but if used with a bit of intention and planning, it does allow for a surprising amount of wealth transfer from one generation to the other.

What is it?

The small gift exemption provides that an individual can be in receipt of a gift of up to €3,000 from another individual without having any tax obligations in respect of it. No tax arises in respect of it. No tax return is required to be filed in respect of it and it does not impact on an individuals Class Threshold. Therefore, it is ignored for Gift tax purposes. While the amount of €3,000 on the face of it mightn’t seem especially large in the context of total family assets, if one considers its use in the context of a typical family, (with generous grandparents!), the results can be interesting.

 How does it work?

Assume a grandfather and a grandmother who have four adult children. Each of the four adult children are married. Each married couple themselves have three children. We therefore have four family units with five individuals in each family. That’s twenty individuals.

If the grandparents provided a gift of €3,000 to each of these individuals, it would allow for the grandparents to transfer €60,000 (€3,000 * 20) of assets without any tax arising. Furthermore, if the grandfather transferred €3,000 and the grandmother transferred a further €3,000 to each of the individuals, it would facilitate the transfer of €120,000 (€6,000 * 20) without any tax implications arising. And if this was done as a Christmas present on the 25th December 2019, and again as a New Year’s gift on the 1st January 2020, technically one could transfer €240,000 from one generation to the next generation without suffering any adverse tax consequences.

So, if Landlords/Parents are concerned around tax liabilities that will arise when they die, they should consider whether this small gift exemption offers an opportunity to transfer some assets when alive to secure tax savings.

You can contact Leanne Lennon at leanne@lawlorpartners.ie or 01 872 5255 to arrange a consultation with Cathal.

Have you any queries about your rental property? Contact IPOA Now – 01-8276000

Categories: Taxation.