How does the taxman treat gifts to my grandchildren?
Q I recently queried the Revenue regarding the €3,000 annual tax exemption for gifts given to a grandchild. I got the impression that these could accumulate and reduce the grandchild’s eventual inheritance tax liability. I also thought the same applied to gifts made to children. But I read something that makes me think I may have got the wrong impression. Can you outline how the exemption applies? I want to make some gifts before Christmas.
AYour impression is right. The exemption applies to the first €3,000 of any gift or gifts received from a donor during each separate tax year. The tax year coincides with the calendar year. So you can give a grandchild €3,000 each year tax-free. Such gifts would have no effect on the €15,075 taxfree threshold that applies to inheritances from a grandparent to a grandchild.
In other words, a grandchild can get up to €3,000 a year tax free from grandparents and a total of €15,075 in other gifts and inheritances. The more annual €3,000s that are given, the greater the amount that can be transferred tax-free.
Q My husband lost the home carer’s tax credit this year because our youngest son finished school last year. I haven’t worked outside the home for many years. I look after my mother who lives nearby. Is there any tax relief we can claim for that?
AThe Home Carer’s Tax Credit is worth €810 a year in saved tax, so its loss is not insignificant. It is really given in respect of the carer, although it is applied to the working spouse’s tax – your husband in your case, since he is the one paying tax.
The good news is that you may well be entitled to this credit since you are caring for your mother.
This relief was introduced by Charlie McCreevy in response to the reaction to the individualisation of tax bands, which was seen to discriminate against single-income families. To qualify, one spouse has to be caring for a child, an elderly person or a permanently incapacitated person and not earn any more than €5,080 in the tax year.
If earnings go above that, the relief is reduced by €1 for every extra €2 of income. If the income goes above €6,880 there is no allowance left.
If you are getting the social welfare carer’s allowance it isn’t included in the definition of income for this purpose.
You are considered to be caring for a child if you are entitled to draw child benefit in respect of that child. Child benefit is currently payable until the child is at least 16. It goes up to 19 if the child continues in full time education.
So you can no longer claim in respect of your son but you are caring for your mother.
The rules don’t require your mother, or any other dependant, to be incapacitated if they are over 65 years of age. It is not necessary either that they live in the home with you, so long as they live close by — two kilometres is used as a rule of thumb by the Revenue. So there seems no reason why you shouldn’t claim this tax relief for the current and future years.
But you do have to claim it. Indeed, some people with dependant children may not be getting this relief because the Revenue don’t know that they have children. Others maybe entitled to it because they have lost their jobs and have been forced into becoming single-income families.
They may not be entitled in the year in which the job was lost because the income of the now stay-at-home spouse during the year as a whole will have exceeded €5,080. But they become entitled in the following year.
Q I turned 65 recently. Would I be better switching from my Invalidity Pension to the Old Age Pension?
AThe invalidity pension should have increased to a basic €230.30 when you hit 65, the same as the State pension. You will be switched onto the State pension at 66 but the benefit stays the same. Those reaching 65 after January 1 will remain on the lower rate of invalidity pension until they are 66.