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Discover how one mistake in saving for kids in Ireland cost €65,000 tax, and one mistake in bequeathing a home cost €77,000.

And learn how high-net-worth families in Ireland can try to protect their hard-earned savings through proper financial planning.

There are certain exemptions around saving and gifting to your children here in Ireland, but the conditions must be met in order to benefit.

Not meeting these conditions can be a costly and unexpected mistake dear reader, so pay attention!

Why “Doing It Right” Matters... A €77,000 Lesson in Gifting to Kids in Ireland

If you’re building long-term wealth for your family, and particularly if you're considering saving or large gifting to your kids in Ireland, this story is worth a read!

A recent case before the Tax Appeals Commission shows just how costly it can be when good intentions don’t match the fine print of Irish tax law, which is often less than straight-forward!

Case 1: One Mistake, €77k in Tax

A woman inherited her mother’s home and believed she qualified for the Dwelling House Exemption, which can eliminate Capital Acquisitions Tax (CAT) entirely in certain cases.

One of the main qualifiers for Dwelling House Exemption is that you (the receiver) don't own any other property or have an interest in any other property. The logic here is that only people who do actually live at home with the parent prior to death, can inherit the family home tax-free. It's not intended as an exemption for people who already have another property, irrespective of where they claim to live.

In this case, the woman lived in the family home with the parent prior to death. So she claimed the Dwelling House Exemption. She did live there.

However, Revenue disagreed. It was then advanced to the Tax Appeals Commission, who agreed with Revenue. Rejected!

Why?

Well, Revenue deemed that she still had a legal interest in a second property, and was not eligible for the Dwelling House Exemption.

The second property in question was her former marital home. Even though she hadn’t lived there in years, and even though the paperwork to transfer the property out of her name had been initiated, the transfer wasn’t completed before the inheritance occurred. Ouch.

Result? €77,500 in CAT, no exemption, and a painful financial lesson.

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Case 2: Mistakes in Saving for Kids in Ireland, €65k in Tax

The Money was just resting in my account father!

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Here's a real-life cautionary tale from a recent Tax Appeals Commission case, and it’s one we can all learn from.

Firstly, lets remind ourselves about the Small Gift Exemption. This allows anyone to gift anyone else up to €3,000 per year, with no taxation on either party. One of the conditions is that it must actually transfer from one person to the other, irrespective of whether they are parent-child, friend-friend etc. etc. The most you can transfer tax-free from one person to the other is €3,000, each year. This gifting, assuming it is done every year within the limits, does not eat into the Group A limits, where a child can inherit €400k from parents. In theory, a child could receive €6k per year from 2 parents over the course of 40 years for example, totally €240k, plus another €400k under Group A. They could, if done properly there, receive €640k totally tax free in such a scenario.

Back to the case! This ended up in the Tax Appeals Commission also, and centred around an individual who received a lump sum cash gift of €165,000 from his parents in 2021. They claimed this was a lump sum payment transferred to the son, of many years of accumulated gifts under the Small Gift Exemption.

Sounds great, but the Revenue came knocking, noting that the child had already used up his Group A tax-free threshold, adn this was a lump-sum payment made in that year. Therefore, this €165k meant a tax bill of €49,500 on that gift alone.

In 2022, the parents paid that tax on his behalf, and surprise-surprise, Revenue treated that as another gift! Ouch.

That second 'gift' added another €16,335 to the bill, bringing the total Capital Acquisitions Tax (CAT) liability to €65,835.

We refer to compound interest a lot, as a positive, but this was compound taxation, not fun!

The parents nor the child could have been too happy about this, so brought the case to the Tax Appeals Commission, hoping to get it overturned.

Their argument was this:

The money he’d received from his folks years before, €170,000 in 2017 and €19,000 in 2018, weren’t gifts in the traditional sense. Instead, he claimed they were the result of annual “small gifts” from his parents and two great-aunts dating back to the early ‘90s, which had been building up in the an 'ear-marked' account for the child.

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As noted earlier, under the CAT rules, you can receive up to €3,000 per year from anyone tax-free, but you need to actually transfer the money to the receiver! Revenue won't buy the argument that 'The money was just resting in my bank account' ala Father Ted!

Unfortunately for our man, it appears there were no annual transfer, and no firm records to prove some claims. And even if his parents were the most trustworthy people on the planet, in tax terms, verbal evidence won’t cut it.

The Commission ultimately didn’t buy it. They said those earlier sums were definitely taxable lump sum gifts from the parents. So, that meant the CAT threshold had been eaten into well before the 2021 gift arrived. In other words, the Revenue were deemed correct to have issued the tax bill of €65,835.

(04TACD2024)

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What This Means for Irish Families Saving & Gifting for Kids

If you're a parent or grandparent thinking about saving for your kids or grand-kids, gifting assets, or building a legacy, these cases highlight three essential truths, in my view:

1. Good Intentions Aren’t Enough

Irish tax law is black and white. You either qualify or you don’t. “Nearly” doesn’t cut it when it comes to reliefs like the Dwelling House Exemption or Small Gift Exemption.

2. The Right Advice Makes All the Difference

This situation could almost certainly have been avoided with timely legal and financial advice. If your financial picture includes property, business assets, or inheritance planning, getting proper guidance up front is vital.

That’s what we do at Informed Decisions Financial Planning; encouraging people to look at the 'big picture', to plan around it using tax, legal and financial planning. Ultimately, help people avoid expensive mistakes.

3. Ireland’s Tax Reliefs Are Reasonably Generous – But Rigid

You can save substantial sums through well-structured wealth transfers, but only if you meet strict conditions.

Miss a step, and it could cost you dearly.

Smart Ways to Save for Kids in Ireland – Done Properly

For families looking to build and pass on wealth, here are the most effective options we use regularly with clients:

• Small Gift Exemption – €3,000 per parent, per child, per year – completely tax-free. (complete the transfer!)
• Section 73 Policy – Could be used to accumulate a sum for exclusive use of paying future CAT bill (not resulting in further CAT, like above!)
• Bare Trusts – Effective for gifts to children under 18, with control and structure
• Planned Inheritance & House Gifting Strategies – With the goal of minimising CAT and avoiding legal pitfalls, potential Family Partnerships etc.

Final Thoughts – Get It Right the First Time

The woman in the Tax Appeals Commission case (04TACD2024) didn’t do anything malicious or even careless. She was unfortunate I guess in that the transfer paperwork didn’t get finalised in time.

If you're focused on saving for kids in Ireland, building generational wealth, or gifting assets wisely, it's important to plan with precision, or at the very least to have a proper exploration of the options and the possible opportunities.

Don't find yourself 'doing a Father Ted' in years to come for the Tax Appeals Commission.....!

I hope this helps you avoid doing so!

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Paddy Delaney.

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