CHILDREN RECEIVING PAYMENTS from their parents for things like mortgage deposits or holidays could be taxed after a tightening of tax rules.

A briefing note published by Revenue on Christmas Eve is advising people that the Finance Act passed earlier this month has tightened exemptions on Capital Acquisitions Tax (CAT).

Parent-to-child exemptions now only apply to children who are either under 18 or under 25 and in full-time education. Children who are dependent because they are “permanently incapacitated” by a “physical or mental infirmity” are also exempt.

A report in this morning’s Sunday Times noted Revenue’s briefing, saying that they “are concerned that parents are abusing an exemption that only covers payments for child support.”

Most people, however, will be unaffected by the rules. As it stands, a child is entitled to a life time tax-free threshold of €225,000 in respect of gifts and inheritances taken from his or her parents.

This will not change so the new rules would only apply if a parent had given more than €225,000 to their child.

Despite this, the new rules will affect some people with Revenue saying that, for the exception to apply, a child must be in some way financially dependant on the parent:

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.

Revenue has a guide on the Capital Acquisitions Tax which outlines that parental support for family functions like weddings are not taxable because they are considered a gift.

“However, a gift such as a car, a house or a paid holiday is still a gift for gift tax purposes,” Revenue says.

The new rules could perhaps be significant in the context of the new Central Bank rules on mortgage lending which mean most buyers will need a 20% up-front deposit.

The rules have been criticised for being restrictive and the latest change could make it more difficult for first-time buyers to seek help from their parents for a deposit.

Read: Bubble buster: Homebuyers face 20% deposits as banks hit with tighter controls >

Read: The budget will take a big hit next year because of Irish Water: ESRI >

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