Lucinda Creighton (Dublin South East, Independent)
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184. To ask the Minister for Finance the changes he plans to make to the capital acquisitions tax; if he will confirm that he will not amend section 82 of the Act which states that money paid by a parent for support, maintenance or education of a child will not be considered as a gift or inheritance for tax purposes; and if he will confirm that he does not propose to limit the exemption to gift or inheritance tax to children under the age of 18, or under 25 if they remain in full-time education as recently reported. [44197/14]

Michael Noonan (Limerick City, Fine Gael)
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Capital Acquisitions Tax (CAT) is the overall name for both gift and inheritance tax.

For the purposes of CAT, the position is that the relationship between the person who provides the gift or inheritance (i.e the disponer) and the person who receives the gift or inheritance (i.e the beneficiary) determines the maximum tax-free threshold known as the Group threshold below which gift or inheritance tax does not arise.

There are, in all, three separate Group tax-free thresholds based on the relationship of the beneficiary to the disponer.

Group A: €225,000 -applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.

Group B: €30,150 - applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer.

Group C: €15,075 -applies in all other cases.

Any prior gifts or inheritances received by a child from their parents since 5 December 1991 are aggregated for the purposes of determining whether any tax is payable on the current benefit.

In addition to these tax-free thresholds, a number of exemptions and reliefs from CAT are provided in CAT legislation.

Section 82 exempts certain receipts from Capital Acquisitions Tax.

Under section 82(2), normaland reasonablepayments made by a disponer, during his or her lifetime, for the support, maintenance or education of his or her children (including the  children of a civil partner), or to a person to whom the disponer stands in loco parentis, or to a dependent relative of the disponer, are exempt from CAT.

The exemption, as it stands, applies to children without any age restriction and the test in relation to what is normal and reasonable is determined by the circumstances of the disponer. There is evidence that the exemption is being used to provide significant sums tax-free to adult children far in advance of the intention of the exemption.

The proposed amendment to section 82(2) in the Finance Bill is intended to ensure, where there is the need to make provision for support, maintenance or education of children, that the exemption is confined to payments made to minor children and to children under the age of 25 years who are in full-time education.

It is appropriate to note that this exemption is additional to the CAT tax-free threshold available to a child (currently €225,000).  The tightening of the rules also does not affect the small gift exemption under which anyone can receive gifts of up to €3,000 in any year from any other individual. Adult children can therefore receive up to €6,000 a year from parents without any CAT implications.

Section 82(4) currently provides a similar exemption for normal and reasonable payments made to an orphaned child or to an orphaned child of a civil partnerfor support, maintenance or education, after the death of their parents, from a trust set up by the parents during their lifetime. However, the legislation currently confines this exemption to minor orphaned children.

The second proposed amendment to this section extends the exemption to orphaned children up to the age of 25 years who are in full-time education, thus ensuring that children of living parents and orphaned children are treated equally for Capital Acquisitions Tax purposes.

I have also introduced an amendment to section 82 at the Committee Stage of the Bill. This amendment expressly ensures that the exemption applies to a child, regardless of age, who is permanently incapacitated by reason of physical or mental infirmity. This amendment addresses many of the concerns raised concerning the amendment to Section 82.

As stated, the purpose of the amendment is to ensure fairness in the application of the Gift Tax rules and to ensure that high net worth individuals do not claim exemption for valuable gifts of capital to their children by reference to the exemption provision in section 82 that is only intended to apply to normal and reasonable payments for the support, maintenance or education of children.

Finally, Revenue has stated categorically that it has no intention of pursuing people over routine, normal expenditure within families. Suggestions have been made in the media that the amendment will result in the Revenue Commissioners attempting to attribute a value to the provision of bed and board by parents to children over 25 who continue to reside with them. This is not the intention of the legislation and this suggestion may have caused needless concern to people. The Revenue Commissioners have already informed the Tax Administration Liaison Committee (which includes members of tax practitioner bodies and the Law Society) that the legislation will not be applied in this way.

As a matter of course, Revenue will issue a detailed public statement to practitioners which will outline how the section will work in practice when the Bill is passed into law.