Picture the scene – I hope it applies to you today or in the not-too-distant future… You’ve got to that point in your financial life where life is getting easier. Maybe the mortgage is paid off or almost there, and you are finally seeing your savings grow incrementally each year, even though you are doing most of the things that you want to do. You are finally seeing that after a nice holiday or two, socialising as you like and changing the car every couple of years, there is still some money left over.

You may also be at the point where you want to make life a bit easier financially for the people you love and share some of your unused wealth. After all, receiving a few bob early in life always makes life a bit easier, doesn’t it? So, you decide to start gifting. And this is where the taxman starts rubbing his hands…

Unfortunately, in Ireland we have a pretty penal tax environment in this regard. While there are some exemptions as we’ll examine below, Capital Acquisitions Tax (CAT) is charged at a headline rate of 33% to the receiver of gifts and inheritances. The taxman wants one third of the money received.

However there are ways you can reduce the tax, starting with CAT thresholds. The recipient only pays tax on the value of a gift or inheritance above a threshold amount, which is specific to who they receive the money from. This means that the amount of tax you pay depends on your relationship to the donor of the gift or inheritance.

• A spouse can receive a gift or inheritance of any amount with no tax liability.
• Group A threshold: As a child receiving from a parent, you can receive a cumulative lifetime total of gifts and inheritances from parents of €335,000 without paying tax. Any excess gifts or inheritances above this are liable to tax at 33%. This threshold also applies to stepchildren.
• Group B threshold: A more distant relation (e.g. a grandchild, niece & others) can receive again a cumulative lifetime total of gifts and inheritances from donors under this category of €32,500 without paying tax. 33% tax applies above this amount.
• Group C threshold: If you are not related under the above groups, you can receive a cumulative lifetime total of gifts and inheritances from all other donors of only €16,250 without paying tax. Any excess gifts or inheritances above this are liable to tax at 33%.

With house prices having soared in recent years and families getting smaller, it doesn’t take long before these thresholds are breached, and tax is payable.

This is where the Small Gits Exemption comes in… along with a little planning and time.

Small Gifts Exemption

As the Revenue set out on their website,” You may receive a gift up to the value of €3,000 from any person in any calendar year without having to pay Capital Acquisitions Tax (CAT). This means that you may take a gift from several people in the same calendar year and the first €3,000 from each disponer is exempt from CAT.” This is called the Small Gifts Exemption, and it is a very valuable tax planning tool. The recipients don’t pay CAT on these gifts and they are not deducted from their CAT Thresholds as outlined above.

So, going back to our article title, how do you give €500,000 to your family tax free?

Brian and Paula are our fortunate couple with rising savings that they want to gift to their 3 children, to make life a bit easier for them with their young families. Brian and Paula also now have 6 grandchildren.

Both Brian and Paula can each give a tax-free gift of €3,000 to each of their children and their grandchildren. This is nine gifts of €3,000 per year from each of them, amounting to a tidy €54,000 gifted each year with no tax liability for the recipients and without biting into the CAT thresholds. Within 10 years, they will have gifted over €500,000 tax free to their family which, hopefully with interest / investment growth will have further increased in value. Small amounts add up.

Are you at that fortunate point of being able to share some of your wealth with your family? If so, the Small Gifts Exemption is a tax planning tool not to be ignored.  

Money management is a crucial skill that every child should learn at an early age. Learning how to manage finances is not just about budgeting and saving, but it’s also about building a healthy relationship with money. As parents, it’s our responsibility to teach our children about money and help them make wise financial decisions in the future. We’re going to set out five valuable lessons that you can give to your children about money.

Teach them the value of money

The first lesson to teach your children about money is the value of it. Help your children understand that money doesn’t grow on trees, and it takes hard work and effort to earn it. Encourage them to save money and avoid unnecessary spending. This will help them develop a sense of responsibility and an understanding of the value of money.

One of the ways to teach your children this valuable lesson is to give them pocket money. This should be age-appropriate and tied to certain responsibilities. This will help your children learn the value of earning money and the importance of fulfilling responsibilities. Encourage your children to save some of this allowance, and to spend the rest on things they need or want.

Show them the importance of budgeting

Budgeting is another crucial skill that your children should learn. Teach them how to create a budget and stick to it. Help them understand the importance of setting financial goals and how budgeting can help them achieve those goals. Encourage your children to keep track of their expenses and income to avoid overspending.

You can teach your children how to budget by involving them in family budget discussions. This will help them understand how much money is available for spending, saving, and investing. You can also involve them in decision-making processes on how to spend the family budget. This will help them develop decision-making skills, financial literacy, and a sense of responsibility.

Teach them the power of compounding

The power of compounding is a crucial lesson to teach your children. Explain to them how interest works and how it can help their money grow over time. Encourage them to start saving early and make regular lodgements to their savings account. Show them how compound interest can work in their favour over the long term. This will help them understand the importance of saving early and regularly.

As Albert Einstein famously said, “Compound interest is the eighth wonder of the world”…

Show them the benefits of delayed gratification

Delayed gratification is a valuable lesson that your children can apply to all aspects of their life. Teach them to save for things they want instead of buying today on impulse. This will help them learn the value of patience, perseverance, and discipline. Help them understand that waiting and working for something can be more satisfying than instant gratification. It also reduces the regret felt after rushed purchases that prove ill thought out.

You can teach your children delayed gratification by setting savings goals. Encourage them to save for something they want and help them come up with a plan to achieve that goal. This will help them develop those all-important virtues of patience, perseverance, and discipline, and it will also give them a sense of accomplishment when they finally achieve their goal.

Teach them the importance of charity

Teaching your children the importance of giving back can help them develop a sense of generosity. Encourage your children to donate a portion of their allowance or earnings to a charity or cause that they care about. This will help them understand the impact of their actions on others and the world around them.

One way to teach your children about giving back is to involve them in volunteering activities. This will help them understand the importance of helping others and making a positive impact in the world, through their own actions. It will also help them develop empathy and a sense of responsibility towards their community.

In conclusion, teaching your children about money is an essential life skill that can benefit them for all of their lives. It’s never too early to start this journey with them.