Tax Considerations of Providing Rent-Free Accomodation for College Going Childrenby Taxkey Aug 1, 2019 Capital Acquisitions Tax Taxation
As the new academic year commences, some parents may arrange for their college going children to live rent-free in a second property owned by them. In this scenario, the question arises as to whether this rent-free accommodation constitutes a gift to the child for tax purposes.
There is a long standing exemption from gift tax for money (or money’s worth) given by a parent for the support, maintenance or education of their child. To qualify for the exemption the support must be considered reasonable and normal in light of the financial circumstances of the parents. In its guidance, Revenue states its view that payment of accommodation costs for a dependent child attending college would be normal and exempt from gift tax. However, the purchase of a house for a child would not be regarded as “normal” expenditure by a parent, regardless of financial means of the parents and would not be exempt from tax.
In order to qualify for the tax exemption for payments of support, maintenance and education of a child (e.g. payment of rent for a college-going child), the child must be
- A minor child of the disponer (or of the civil partner of the disponer), or
- A child of the disponer (or civil partner of the disponer) who is under 25 years of age and in full-time education at any university, college, school or other educational establishment, or
- A child of the disponer or of the civil partner of the disponer who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself.
In this context being in full-time education includes undergoing training for any trade or profession in such circumstances that the child is required to devote the whole of his or her time to such training for a period of at least 2 years.
In addition, the provision of money to a child of not more than 25 years of age attending university or college (in order to cover costs such as transport to and from university/ college, tuition fees, rent, food, clothes, purchase of educational material, pocket money etc) is not subject to tax.
There is also the annual small gift exemption, which allows children to receive gifts valued at up to €3,000 annually tax free from each parent (i.e. up to €6,000 annually from both parents).
These exemptions are separate and in addition to the normal lifetime tax-free threshold, currently €320,000 in respect of gifts and inheritances taken by a child from their parents (which entitles a child to take gifts or inheritances valued up to €320,000 tax-free from your parents over your lifetime).