Tax-Free Gift for Mortgage: Support Your Child’s Homeownership

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As parents, one of the most significant gifts we can offer our children is the opportunity to establish their roots in a place they can call their own. 

However, becoming a homeowner can seem like an unreachable goal for many young adults due to rising housing costs and strict mortgage requirements.

Fortunately, there’s a strategy that you can use to support your children’s journey to homeownership: a tax-free gift for a house deposit.

How much can I gift tax-free?

The annual Small Gift Exemption allows you to gift up to €3,000 per calendar year without having to pay Capital Acquisition Tax (CAT). 

This doesn’t have to be in a single transaction; you can, for example, give 10 payments of €300.

If a gift goes beyond the annual limit of €3,000 per disponer, only the extra amount is considered for calculating Capital Acquisition Tax (CAT).

This rule for small gifts only applies to gifts and doesn’t include inheritance tax.

Note that gifts eligible for the Small Gift Exemption do not reduce the lifetime tax-free threshold, which is currently €335,000 from parent to child.

Who is eligible to give or receive the gift?

Although it’s common for parents to use this exemption to gift money to their children or grandchildren, gifts can come from anyone. 

And the giver doesn’t have to be related to the recipient to qualify for the tax exemption. 

How can you maximise the benefits of the small gift exemption?

Your children can receive gifts from several people in a calendar year, and the initial €3,000 from each giver is free from Capital Acquisition Tax (CAT).

So, theoretically, each parent could give €3,000 to both their child and their child’s partner, totalling €12,000, without incurring any tax liabilities.

Let’s consider this example:

If you want to gift your daughter and husband money to help with the deposit for a house, you can use the small gift exemption over several years, as demonstrated below:

Year: 2023

Father to Daughter: €3,000

Mother to Daughter:  €3,000

Father to Daughter’s husband: €3,000

Mother to Daughter’s husband: €3,000

Total 2023: €12,000

Year: 2024

Father to Daughter: €3,000

Mother to Daughter:  €3,000

Father to Daughter’s husband: €3,000

Mother to Daughter’s husband: €3,000

Total 2024: €12,000

Year: 2025

Father to Daughter: €3,000

Mother to Daughter:  €3,000

Father to Daughter’s husband: €3,000

Mother to Daughter’s husband: €3,000

Total 2025: €12,000

After 3 years, your daughter and partner will have a total of €36,000, without any tax payable on the gift.

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When applying for a mortgage, is it required to provide evidence of the financial gifts to the lender?

If a portion of the mortgage deposit comes from financial gifts from family or friends, there are legal requirements they must meet. 

During the mortgage application process, it’s necessary to provide a document confirming the gifted amount, also known as the Gitf Letter.

Lenders typically provide their own gift letter, which has to be completed and included in the mortgage application. 

For Revenue compliance, it’s important to maintain records of annual transfers and designate the recipient’s account.

Is there an alternative way to support my children’s future?

A Children’s Savings Plan allows you to give your child an early advantage in their financial future. 

With this savings plan your money is put in trust for your child, relative, or godchild and the child will then avail of gift tax. Ideally, it is suited for those who wish to save for 5 years or more.

Discuss your unique situation with one of our financial advisors at True Wealth to determine the best strategy for you.

Alternatively, you can read our article, Teaching Kids Financial Responsibility: The Benefits Of A Children’s Savings Plan.

And if you seek to save money for your children’s education read our article, What Is The Best Way To Save For Your Child’s College Education?.

Get Financial Advice with True Wealth

Get expert financial advice with True Wealth to explore tax-efficient strategies for gifting funds to your children to assist with their mortgage deposit. 

Our team of professionals can guide you through the process of maximising tax-free gifts within legal boundaries, ensuring that you make the most of available exemptions and allowances. 

By leveraging our expertise, you can strategically plan and allocate funds to your children, helping them build a solid financial foundation for their future homeownership. 

Additionally, gain valuable insights by exploring our article, How To Avoid Gift and Inheritance Tax in Ireland.

We are also experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth management and extraction.

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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.

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