Q: My nephew is in a precarious financial situation at the moment and, while I have provided for him in my will, I feel the money would be a lot more useful now rather than when I die. I believe I could set aside some €40,000 for him, which would give him and his family huge piece of mind. Before I approach him, however, I want to make sure that this won’t come with any negative tax implications. If he’ll have to pay tax on the gift, how does he do it, and is there any way to reduce the tax he has to pay?
A: You’re not the first person with cash to spare and a desire to help out relatives before you pass on. That’s why, while the Revenue Commissioners do levy Capital Acquisitions Tax (CAT) on gifts of cash, property, shares, vehicles and other high-value items, there are generous exemptions available to cut down this liability.
Because you are related to the recipient, he will be able to claim a large gift tax-free. Unfortunately, in your case, your gift will fall above the tax-free threshold of €30,150 allowed for gifts to siblings, grandchildren and nieces or nephews. If you want to give 40,000 to your nephew, he will need to pay 33% tax on €9,850 of the gift. He can do this by filing an IT38 Return through the Revenue Online Service website. If he’s struggling with the paperwork, a useful guide is available here. [http://www.revenue.ie/en/tax/cat/leaflets/it39.html].
In terms of reducing the liability, your options are unfortunately limited. You can’t, for example, give your nephew €30,000 now and €10,000 in 2015 to avoid CAT – the exemption thresholds apply over a person’s full life, and apply to any gifts your nephew receives from grandparents, siblings or other uncles and aunts. Even if you reserve €10,000 for him in your will, it will still count towards the exemption threshold, so CAT will have to be paid on that.
Based on the information available, the only option I can see is gifting money to his own children, if he has them. If you go down this road, of course, the money will have to be transparently set aside for those kids. Even so, knowing that cash is there will doubtless ease financial pressure for the whole family.
Of course, depending on your circumstances, there may be other options for helping out your nephew – and generally managing your finances – in a tax-efficient way, and tax planning is a big part of what we do. If you would like to talk in a bit more detail, don’t hesitate to contact us [link] for an initial, no-obligation meeting.