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Your Questions: What are the tax implications if I give my child money?



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Question: My mother passed away last month and left my husband and me €20,000.

I really want to use this money for some good, to respect the memory of my mother, who was always so generous. I am going to give some to charity, but my only child and her fiancé are currently doing their level best to get enough money together for a deposit on their first home.

I would love to be able to contribute, but I am wondering if there are any tax implications.

I really don't want it to affect her inheritance rights down the line, because we are definitely planning to leave her the family home, and I don't want to see her face a tax bill at that stage. Where do we stand, tax-wise?

Answer: Children are actually allowed a tax-free gift or inheritance of up to €320,000 from their parents.

So that would cover any money you give her now. But you do say you want to keep the inheritance separate. In that case, Taxback.com commercial director Eileen Devereux points you toward the annual €3,000 tax-free gift that each parent can give their child. Each parent can also gift the same amount to their child's fiancé or spouse.

So, in essence, you and your husband could give your daughter and her fiancé €12,000 in a year without her having to pay tax, according to Ms Devereux.

This is known as the small gift exemption and it will not impact the parent-to-child lifetime tax-free threshold of €320,000. Anything over this amount will reduce your daughter's threshold amount.

Question: My health insurance policy renewed in January but I am on a basic, entry-level plan. Can I upgrade my cover now or do I have to wait until my renewal date?

Answer: This depends on which insurer you are with. For example, if your policy is with VHI, you are locked into this contract until your next renewal date, and the provider will not permit any changes, even if you are looking to upgrade cover.

On the other hand, Irish Life Health and Laya Healthcare both permit mid-year changes for members who want to upgrade or downgrade their coverage, according to Dermot Goode of TotalHealthCover.ie.

If you are changing your plan, Mr Goode says, have the insurer explain the upgrade rule to you, as you may find your benefits limited to your present cover for a further two years for any pre-existing medical conditions.

Question: I am planning to buy a newish car after the summer. I have €3,000 saved and the cars I am looking at would mean borrowing around €9,000.

I can't decide whether a personal contract plan (PCP) or a personal loan would be a better deal.

There is also a real possibility that I may have to move to the UK for work next year, in which case I would sell the car here and buy a new one over there.

Answer: There are pros and cons to both forms of finance, and whether you choose one over the other depends on your own situation.

With a PCP arrangement, you do not own the car until the final 'balloon' repayment is made at the end of the term, which is usually three years.

This means the terms of your finance agreement will most likely preclude you from selling the car after one year, as you suggest could happen, without some form of financial penalty.

So you need to consider this if you plan to leave the country, according to Kevin Johnson, the chief executive of the Credit Union Development Association.

It is not easy to compare PCPs and personal loans because they are very different in the way they are structured.

A PCP is generally for new or nearly new cars, and has low monthly repayments for a set period of time, Mr Johnson says.

At the end of a PCP, you still do not own the car, but you have the option of making a big balloon payment to buy the vehicle.

Alternatively, you could return the car and pay no more, or upgrade the car and enter into a new PCP agreement.

A personal loan is more straightforward, Mr Johnson says. It has a set monthly payment. The term can be anywhere from one to five years, or even seven years.

Interest rates differ depending on your lender, but you can sell the car and repay it without penalty at any stage.

Also, given your savings, it might be worth inquiring with your local credit union, as they generally offer special savings-backed loan products which have lower interest rates, Mr Johnson says.

You and your husband can give your daughter and her fiancé €12,000 in a year without her having to pay inheritance tax.

Under a PCP deal, the terms of your finance agreement most likely will preclude you from selling the car after a year without some form of penalty.

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