All about the Small Gift Exemption – what you need to know

 “My father wants to give my children money towards college for when they’re older but I heard there may be a tax implication. Is the correct and if so, how can I mitigate against it?”

Yes, you can maximise the amount you give to your children/grandchildren tax free.​ Many grandparents would happily contribute to their grandchildren’s education or college fees to help their offspring who may be struggling financially, however:

– Many aren’t aware this could trigger a Capital Acquisitions Tax (CAT) liability for their grandchildren.
– CAT applies to any amount above the threshold of €32,500 allowed between grandparent and grandchild.
– Clever gifting through careful tax and investment planning can ensure less or no tax liability on the transfer of this wealth from one generation to another.
– Each individual grandparent can gift each grandchild up to €3,000 each per year.
-This is known as the ‘Small Gift Exemption’ (SGE) and does not eat into the child’s CAT group thresholds.

Given that Gift and Inheritance tax is now levied at a rate of 33% it is well worth utilising this annual exemption from Gift tax as a long-term inheritance planning tool. The small gift exemption allows anyone to gift up to €3,000 in any tax year to anyone else without it eating into that person’s CAT threshold.

So, to return to my first point, properly planned and utilised, the small gift exemption can be used extremely effectively for grandparents to disperse their wealth whilst they are alive and help out their family when they need it most. There is also nothing to stop different relatives, a parent, sibling, aunt or uncle all gifting up to €3,000 in a tax year to an individual if there is a particular need and in addition, there is nothing to stop each or any of them doing the same in subsequent tax years.

Many families could do precisely that as part of effective estate planning to reduce eventual exposure to capital acquisitions tax on an inheritance, which also has the big advantage of giving younger people access to money when they need it to start their independent lives rather that at a later point when a relative eventually dies.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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