Our oldest offspring is set to undertake his Leaving Cert exams this year with the intention of enrolling in an Irish tertiary education institution the subsequent September. Due to his lack of personal finances and ineligibility for grants, my spouse and I have decided to finance his studies, continuing our tradition of supporting him financially. The total expenditure encompassing accommodation, student contribution costs, living expenses and the like is anticipated to range between €15,000 and €20,000 annually for the coming four years.
Given that our son has just reached 18 years of age, we are curious if this has any potential implications on tax, especially in relation to future inheritances or lifetime threshold restrictions. As this is uncharted territory for us, any advice would be gratefully acknowledged.
It is a thrilling yet somewhat daunting period as our oldest is preparing to leave the nest for the first time to enter the world of higher education next year. Ensuring he has a place to stay, considering he won’t be residing at home, poses a significant obstacle.
Usually, on-campus dwellings tend to swing towards newcomers, which might be an advantageous solution if our lad is certain about his chosen institution and if accommodation is accessible. Today’s challenges have been magnified as several agencies managing custom built off-campus student lodgings are burdening students with 51-week contracts despite their requirement for just 40 weeks.
In the wake of several articles by The Irish Times recounting the tale of a fellow reader, Simon Harris, the Minister for Higher Education, clarified his willingness to implement legislation, if needed, to mandate landlords to provide tenancy agreements aligned with the academic year instead of the calendar year. However, it remains uncertain whether this measure will regulate the major developers before our son’s first academic year.
Your suggested expenditure isn’t unfathomable, however, you may find the total cost slightly higher. Cost of living surveys aimed at students, notably ones published by UCD and Technological University Dublin, are helpful resources. For an academic year of nine months, they project this year’s costs falling within €14,094 (TU Dublin) and €24,480 (UCD). Naturally, these expenses are expected to witness a gradual spike over your son’s prospective four years in tertiary education, especially if your other children choose to follow a similar path.
Your predominant worry is how this will influence him in relation to taxes, as he is currently of age. You’re right to verify this as HM Revenue and Customs revised the stipulations regarding financial aid for mature offspring around ten years ago. This was because it noticed an exploitation of the prior rule by affluent parents. They were essentially sponsoring considerable portions of their adult children’s living costs, including house and car purchases, holidays and so forth.
From your standpoint, there’s some encouraging news. There’s an exclusion intended specifically to allow ordinary financial help from parents to their children in full-time education. The 2014 Finance Act’s Section 81 amended Section 82(2)(a) of the Capital Acquisitions Tax Consolidated Act 2003. This amendment pertains to the exemption of certain payments from being included under capital acquisitions tax, also familiar to many as inheritance or gift tax. It permits adults to finance the provision, upkeep and schooling of three classes of children.
The first group is, understandably, minor children, those under 18 years of age. The second is an adult offspring who is permanently disabled due to physical or mental ailment, preventing their self-support. It also exempts “a child of the person making the disposal (that would be you), or of the civil partner of the person making the disposal. The child must be older than 18 years but younger than 25 years and must be receiving full-time education or instruction at any university, college, school or other educational establishment”.
Provided your son is still in full-time education and below 25 years old, the legislation is content for you to continue financing his living expenses. It will not be regarded as a wealth transfer to your child even though he is over 18 years old.
This implies there will be no effect on the lifelong cap on what your son can accept from you, as his parents, either as presents exceeding €3,000 in any given year from either of you, known as the small gift exemption, or via inheritance. The lifelong cap is currently set at €335,000, although this figure is subject to change.
In conclusion, I’d like to mention that certain situations can be delicate, and it’s certainly not my intention to upset anyone, especially after witnessing the drawbacks of some attempts to modify the Constitution on similar matters. You’ve written this letter in the capacity of parents, however, employing both sets of initials may reveal your identities rather promptly, which is why I’ve only used one set, following our common practice. I chose the father’s initials to avoid making assumptions about the mother retaining her maiden name, just to clear any doubts.
For questions, you can reach Dominic Coyle at the Q&A division of The Irish Times, 24-28 Tara Street Dublin 2, or electronically at [email protected]. This column is a reader service and is not meant to replace professional advice.
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