Skip to main content

Capital Acquisitions Tax

Amendment to exemption from gift tax for support, maintenance and exemption of children

Capital Acquisitions Tax (CAT) is a tax that imposes a charge on individuals who receive gifts and inheritances where the value of the gifts and inheritances exceed that individual's lifetime tax-free threshold.

Gifts to children generally

It should be noted that gifts to children by parents are not all taxable.  In the first place there is a small gift exemption of €3,000 per annum.  In addition gifts and inheritances are only taxable if, in aggregate, they exceed a lifetime threshold of €225,000 and are only taxable on the amount in excess of that threshold.  Where CAT applies it is levied at 33%.

Exemption for support, maintenance or education

Section 82 of the Capital Acquisitions Tax Act 2003 exempts from CAT money or money's worth given by an individual ("the disponer”) during his or her lifetime for the support, maintenance or education of his or her children, his or her civil partner’s children or a person in relation to whom he or she stands in loco parentis, as well as payments for the support or maintenance of a dependent relative under section 466, TCA 1997.

Finance Act 2014

Section 81 Finance Act 2014 has amended section 82 to confine the exemption of receipts by children (including orphaned children) for the provision of support, maintenance or education to receipts by:

• a minor child of the disponer or of the civil partner of the disponer or, 

• a child of the disponer, or of the civil partner of the disponer, who is more than 18 years of age but not more than 25 years of age who is receiving full-time education or instruction at any university, college, school or other educational establishment, or 

• a child of the disponer or of the civil partner of the disponer who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself. 

The purpose of this amendment is to prevent what Revenue perceived as the abuse of this exemption by wealthy parents who could made substantial gifts to their adult children free from CAT.  However, by restricting the exemption in such a manner, the effect of the changes is to create a new tax burden for adult children who may for whatever reason require the financial support of their parents.

Conditions for the exemption

To qualify for the exemption, the provision of the support, maintenance or education must be:

(i) Such as would be part of the normal expenditure of a person in the circumstances of the disponer, and 

(ii) Reasonable, having regard to the financial circumstances of the disponer. 

Revenue have recently issued written guidance as to the applicability of this exemption in light of the Finance Act 2014 changes.  Revenue’s view is that “normal” in this context refers to the nature of the expenditure rather than the amount and that it means expenditure that might typically be incurred by a person in the circumstances of the disponer. 

For example, payment of fees and accommodation costs for a dependent child attending college would be normal and would be exempt from gift tax – albeit that not all parents would incur such costs. 

On the other hand, the purchase of a house for a child would not be considered part of the “normal” expenditure of a disponer, regardless of the financial means of the disponer and would not be exempt from gift tax.

“Reasonable” has to be judged by reference to the financial circumstances of the disponer. This requirement prevents a disponer from, for example, making payments that are disproportionate when viewed in the light of the disponer’s means. However, it does not, of itself, set a general ceiling on the value of what can be provided by way of maintenance or support.

Revenue state that it is the long held interpretation of the Revenue that the exemption provided by Section 82(2) is that it does not cover all payments by a parent to a child notwithstanding that such payments may meet the tests of “normal” and “reasonable” outlined in the foregoing paragraphs. The exemption only applies to the provision of support, maintenance or education. This implies at least some level of financial dependence on the part of the child. Revenue does not accept that gifts to a child who is financially independent can come within the terms of the exemption even though the wording of the legislation does not require financial dependence.  Neither does it accept that gifts of a capital nature to a child are exempt from gift tax under this section. 

The changes introduced by Section 82 in the Finance Act 2014 have been made in the light of identified abuse of the exemption, where practitioners have sought to argue that gifts such as cars and houses to adult children constitute gifts made in money or money’s worth for maintenance, support or education.   Given the wealth of some of the individuals transferring these gifts it could be argued that these gifts are “normal” for these families but it is clear that the legislation was never intended to apply in this way. 

Revenue have also made it clear that in applying this legislation they will not impute a value to the provision of board and lodging for adult children in their parents’ home for CAT purposes.  This response came after practitioners and representative groups such as the Law Society and Tax Administration Liaison Committee voiced their concerns regarding this issue.

Revenue have produced a list of examples of gifts and payments which are exempt from CAT.  These include:

• The non-exclusive occupation of the family home by a child (including where relevant the child’s spouse/partner) no matter what the age of the child.

• The free use of a house owned by a parent rent-free, to a child not more than 25 years of age who is in full-time education.

• The payment by a parent of the cost of a family function such as a wedding is not a gift whereas a paid holiday or car is deemed a gift.

• Payments to cover a child’s normal costs associated with attending college such as rent, food, clothing, books, pocket money, fees and transport costs are not subject to CAT.

Revenue have indicated that the following benefits would not fall within the terms of the exemption:

• A gift of a cash deposit to allow a child to buy a house.

• The free use of a house owned by a parent to a 30 year old child for an indefinite period. 

• A gift to a child in excess of the annual small gifts exemption of €3,000 for a deposit on a house.

• Gifts to children who are financially independent will not qualify for the exemption.

A number of interesting anomalies arise in interpreting the extent of this exemption.

For example, a family may own a principal private residence in Cork and also have a house in Dublin which is used by children under the age of 25 in full time education.  However, the question arises as to the position once the children are no longer in full time education/over 25.  A follow on point arises where the children have non-exclusive use of other family properties such as a holiday home.

The definition of a financially independent child may also be open to interpretation.  For example, if a child aged 21 has won the lotto, is that child financially independent and denied relief where a parent pays for university fees or related living expenses while attending university?  Where for example an apprentice solicitor earning low wages receives additional financial support from a wealthy parent, will Revenue view that child as financially independent?  

The changes to section 82 confine the use of the exemption to beneficiaries under 25 only.  This creates a potential unfairness to children over 25 who may have a particular financial need. For example, in the past we have seen the exemption used where a parent temporarily provides financial support for a child who has fallen on financially hard times whether by reason of illness, the loss of employment or because of solvency issues.  If the child is over 25 years of age, the exemption will no longer be available and the child may therefore be required to pay tax on any such financial support depending on what prior benefits they have received in the past.


In conclusion, the new restrictions on the use of the exemption creates a potential for unfairness, particularly where a parent makes payments for support or maintenance to a child over the age of 25.  

While the aim of the changes was to prevent the exemption applying to large capital payments being made by wealthy parents looking to pass wealth to their children, it is our view that the changes have gone too far and will impose a tax on modest cases of parental support of a child. 

Further, Revenue guidance on the matter is not entirely in line with the legislation as the legislation deals only with the disponer’s means and makes no reference to the beneficiary’s financial status.

If you are concerned about whether any payments made to or on behalf of a child are now taxable we would suggest that you contact any of our private client tax team who will be happy to provide advice on your particular circumstances.


Marianne Donaghy
Taxation Manager
+353 1 417 2473


Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey