Will financial support from parents be taxed at 52% – The Irish Times
I am a 54 year old German national and have lived and worked in Ireland for 27 years, most of it as a freelancer, paying my income tax in Ireland. I have always been a tenant and do not own property in Ireland.
Recently, my retired parents (German nationals and residents) transferred to my name the legal ownership of their investment property (an apartment) in Germany, retaining the right to the beneficial interest, i.e. lifetime rental. They receive rental income from it each time it is rented out.
Now, as I consider a career change, facing potential financial instability during the transition, they have offered me the rental income. To my knowledge, property income is subject to a fairly high tax rate here—52%. 100 I believe.
I wonder if the tax would apply in this case of income from a given property? If tax is applicable, what rate would it be, given my lower than normal earnings over the next year or two during my retraining? Could I deduct it from the loss of income? Would it even be worth receiving this rental income?
Ms. MS, email
You may be German, but this is a very Irish riddle. At first glance, this may seem like an income tax issue, but I think it’s more of a gift tax – and that will definitely affect the tax side of things.
If it was simply to receive rent from a property you owned, then it would be dealt with in Ireland under the normal income tax rules.
This does not necessarily mean that you would pay tax “at 52%”. It depends on your income level. In Ireland, income up to €36,800 is taxed at 20%. Anything over this amount is taxed at 40%.
In addition to this, income also attracts Social Insurance (PRSI) at 4 percent and Universal Social Charge on a sliding scale.
If that rental income was your only income, I doubt you’d pay the top tax rate of up to 48.5% on all of it — and certainly not 52%. And since the first €36,500 is taxed at 20%, any tax due would likely be comfortably less than 30%.
While we are dealing with theory, domicile is also sometimes an issue on overseas income. Although you have been a resident and tax resident here for a long time, it is still likely that you consider Germany your home country and clearly still have ties there. It would probably make your domicile German.
In this case, you would not pay tax on the rent of a property that you owe until you bring it into the country. Of course in this case the question would be somewhat academic as the purpose of the exercise is to fund your living expenses here so that they come into Ireland and are treated as income here.
But, as I said, this is all moot – interesting to anyone collecting rent from a property they own, but not really to you. Your situation is different.
The bottom line here is that your parents have retained a lifetime interest in the income stream from this apartment. This rent is therefore their income and is subject to German income tax law. Their decision to allow you to take advantage of this income during your conversion is in fact to offer you the rental income.
I’m no expert in German tax law, but I suspect they may still be subject to income tax on the rent regardless, based on the life interest.
From your perspective, any gifts you receive while you are a resident will be compared to your lifetime tax exemption threshold covering gifts and inheritances.
With regard to gifts, the first €3,000 per year of any person is reserved. So if both of your parents share this rental income and therefore both provide you with the income stream, this figure doubles to €6,000.
In Ireland, as in Germany, you then have tax exemption thresholds on donations determined by your relationship with the donor. The limit in Ireland for a child receiving a gift or inheritance from a parent is currently €335,000, although this may change from year to year. I think the figure in Germany is €400,000 although that works on a rolling 10 year basis whereas the Irish threshold is a lifetime limit.
Thus, below these €335,000 — after deduction of the exemption for small gifts of €6,000 per year between the two parents — you will have no tax to pay. Once you exceed this limit, you will pay a capital acquisitions tax of 33%.
This is a self-declared tax and the tax rule in Ireland is that you must notify the tax authorities when you exceed 80% of the tax exemption threshold – i.e. €268,000 – even if no tax is due until you reach the €335,000 level. .
Of course, using this tax-free threshold now on the gift of rental income from this German property means that there will be less tax-free room available when you finally take control of the property – how much you will be assessed for Capital Acquisitions Tax, also known as Gift Tax or Inheritance Tax.
People get very stressed about it for reasons that always baffle me. If you need help now while you are retraining, now is the best time to tax the donation tax benefit. There’s no point in you having to struggle financially just to inherit the property later, when your financial needs probably won’t be as dire.
Normally a gifted property would expose you to stamp duty charges. However, in this case, as the property is not in Ireland and to my knowledge the paperwork for the transfer into your property was not done in Ireland, you will not have to worry about stamp duty .
Please send queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or email [email protected]. This column is a reading service and is not intended to replace professional advice