In my list of Tips for Reducing Inheritance Tax, I suggest that the €3000.00 annual Gift Exemption be used to reduce Inheritance Tax. It is an exemption often overlooked. That is because it seems trivial compared with the kind of money that attracts Inheritance Tax. In fact, the legislation itself describes these payments as “small gifts”, but this exemption is well worth looking at.
Now €3000.00 a year is a lot of money to some people. It is almost a quarter of the maximum State Pension, for example. But to people worried about Inheritance Tax, it is not real money so the annual Gift Exemption is often ignored in Inheritance Tax Planning.
That is a big mistake. Imagine, for example, that you have a husband and four children. Imagine also that you are wealthy enough to be concerned about Inheritance Tax. You might have six grandchildren as well. Your situation is not unusual. If you and your husband give each of your children and grandchildren €3000.00 in a calendar year, that makes a total of €60000.00. That is real money in my book and you can do it every single year. Tax free.
Now let’s look at this from the point of view of the person who gets the money. You have to imagine once again. I am twenty-six and struggling to save a deposit on an apartment. My parents and grandparents are still living. I need €50000.00 for the deposit and my parents would love to give it to me, but they don’t want it taken into account for Inheritance Tax when they die.
One possibility is that each of my two parents and four grandparents give me a gift of €3000.00 on New Year’s Eve this year and another €3000.00 the day after, which is New Year’s Day next year. If I am lucky, I have a couple of doting aunts who will chip in as well. So I have eight people who are willing to help me out and who like the idea of saving tax. I will have €46000.00 by New Year’s Day next year and no tax to pay. I call that real money too.
If you need help with Inheritance Tax, Capital Gains Tax or Income Tax after a death, email bradleys@iol.ie, click the call button, phone 014545138 or use the Contact Form.