My 25 year old son is doing a year of postgraduate studies at an Irish university. Since he was unemployed for a year and a half before he started his studies, he had very little money. I pay his tuition fee of € 10,000 and also finance his accommodation, etc. Can I claim the fees for tax purposes? Or is my son applying? This money is not a loan for my son.
Will this money be considered by me as part of his future inheritance? What are the tax implications for me and my son?
Mrs. E.O’L., Email
Your son is hardly alone in the environment that has prevailed over the past 21 months as the Covid-19 pandemic has resulted in many people losing their jobs. While the job loss is not necessarily due to the restrictions that hampered business during that time, it has resulted in greatly reduced prospects for further employment.
Unsurprisingly, many people – not just the younger ones – have had time to reflect on their circumstances and plans. For many, the hiatus was the trigger to change careers or to return to college to improve their skills and employability.
But the cost of doing this – and the additional cost of living while studying – are not insignificant and can be an obstacle. Your son is fortunate that you can help him financially, but you should consider what assistance is possible and which is not. The rules were tightened significantly several years ago when wealthy parents abused the process to fund essentially all of the lives of their adult children in full.
So there are two things here: tax breaks on tuition fees and financial support for your son.
Let’s get to the former first. Fees for recognized university courses, which certainly include a master’s course at a university, can be tax relieved. 20 percent of the relief is claimed by the course payer, regardless of who actually visits him. In this case, you can apply for discharge, not your son.
However, the tax exemption that you can claim for each of your son’s courses is limited and amounts to € 7,000. The costs for master’s courses vary depending on the university and subject area, but the upper limit for the relief is fixed.
This limit includes tuition fees and all student dues. That seems to cover the number you are talking about. Does not include money spent on student or Union of Students of Ireland fees, or additional administrative or sports center fees.
However, from the € 7,000 – or lower course fee – the Revenue Commissioners will deduct the first € 3,000 the applicant has paid in eligible fees. In your case, this means that your eligible claim will drop € 7,000 to € 4,000. If a family has made a claim to more than one student, the 3,000 euro discount applies to the entire application, not per student.
In this case you request € 7,000, the turnover will not take the first € 3,000 into account and you will receive € 800 relief from the fees – 20 percent of € 4,000.
Then we come to the trickier area of parental support. As I said above, the rules were tightened here in the 2014 Finance Act. And, what is crucial for you, there is an age limit – 25.
The good news is that as of now, you’ll be below that.
Pursuant to Section 81 of the Finance Act 2014, payments to a child do not count towards that child’s lifelong tax exemption limit for large gifts (over € 3,000 per year) and the inheritance of a parent intended for their maintenance, maintenance or education, but rather only in very special circumstances.
First of all, it is not surprising that financial support for an underage son or daughter – or the child of a partner – is excluded. The same applies to your own children or the children of a registered partner if the child is “permanently incapable of work” “due to physical or mental disabilities” regardless of age.
The third category is of interest to you. Children of legal age – including those of a partner – who are over 18 but “not older than 25” and are in full-time education are recorded.
This means that you can continue to pay your son’s fees and maintenance for the time being and this will have a negative impact on future inheritances or gifts. He retains the full category A allowance for a child of one parent, which is currently 335,000 euros.
However, if he turns 26 later in the year, that position will change. You and he will no longer be able to take advantage of the exemption and any monies you spend on fees or accommodation thereafter will be offset against his Category A lifetime limit.
It should be possible to pay the full fees in advance – if you can afford the hassle – so that they are not paid after he turns 26. You can continue to claim the annual allowance for small donations with which you can give your son up to to be able to give up to € 3,000 a year without affecting your inheritance tax limit.
Exception for small gifts
If your son’s living expenses are shared between you and his father (or someone else), he can take the € 3,000 exemption for each financier, which can increase the benefit to € 6,000 or more.
I know you said that the assistance you are giving your son is not a loan, but if that relief does not cover the amount he will need to complete his course after he turns 26.
The income requires an interest rate for family loans that is at least equal to the current interest rate for sight deposits. But since those rates are currently zero, they wouldn’t matter right now.
The loan could then be repaid with the small gift allowance over two or more years without putting your son under financial pressure, which seems to be in line with your plan.
After all, in the scenario you have outlined, the actual tax liability arises neither for you nor for your son.
Please send your questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is intended for readers only and is not intended to replace professional advice.