Fund my adult son while he returns to college

My 25 year old son is doing a one year masters degree at an Irish university. As he was unemployed a year and a half before starting this course, he had very little money. I pay his university fees of € 10,000 and also finance his accommodation, etc. Can I claim tax relief on the fees? Where is my son applying? This money is not a loan to my son.

Is this money considered part of his future inheritance from me? What are the tax implications for me and my son?

Ms. E.O’L., Email

Your son is hardly alone in the environment that has prevailed over the past 21 months, with the Covid-19 pandemic meaning many people have lost their jobs. Even though the job loss was not necessarily due to the restrictions that hampered business during this period, it means that the prospects for finding new jobs have been very limited.

Unsurprisingly, many people – not just the younger ones – have had time to reflect on their situation and their plans. For many, the break was the catalyst for a career change or a decision to improve their skills and employability by returning to college.

But the cost to do so – and the additional cost of living while in school – is not negligible and it can be a drag. Your son is lucky that you are able to help him financially, but it is reasonable to check what support is and is not possible. The rules were tightened considerably a few years ago amid what was seen as an abuse of the process by wealthy parents to fund essentially a large part of the lives of their adult children.

So there are two things here: tuition tax relief and financial support for your son.

Tax relief

Let’s tackle the first one first. Tax relief is available on fees paid for recognized college courses, which would certainly include a master’s degree program at a university. The 20 percent relief is claimed by the person paying for the course, regardless of who actually takes it. So in this case, it is you who can claim relief, not your son.

But there is a limit to the relief you can claim for any course taken by your son, which is € 7,000. The cost of master’s programs varies by college and discipline, but the respite limit is fixed.

This limit includes tuition fees and any student contribution. It seems to cover the number you’re talking about. It does not include money spent on student or Students’ Union of Ireland dues, additional administration or sports center fees.

However, from the € 7,000 – or anything less than the course fee – Revenue Commissioners subtract the first € 3,000 paid by the applicant in qualifying fees. In your case, this means that your claimable € 7,000 drops to € 4,000. If a family made a request for more than one student, the exclusion of € 3,000 applies to the entire request, not per student.

Thus, in this case, you claim € 7,000, Revenue will not take into account the first € 3,000 and you will benefit from a relief of € 800 on costs, or 20% of € 4,000.

Parental support

Next, we move on to the more delicate area of ​​parental support. As I said above, the rules have been hardened here in the 2014 finance law. And, especially for you, there is an age limit – 25 years.

The good news is that, at the moment, you are below.

Article 81 of the 2014 finance law stipulates that payments made to a child will not be taken into account within the limit of this child’s lifetime tax exemption on large donations (greater than € 3,000 per child). an) and the inheritance of one less parent for support, maintenance or education, but only in very special circumstances.

First, unsurprisingly, financial assistance for a son or daughter – or the child of a civil partner – who is a minor is exempt. The same goes for your own children or those of a civil partner, when the child is “permanently unable due to a physical or mental infirmity to support himself” regardless of his age.

The third category is the one that interests you. It covers adult children – including those of a civil partner – who are over 18 but “not over 25” and who are in full-time education.

This means that, for now, you can continue to pay your son’s expenses and upkeep and this will have negative implications in terms of any future inheritance or gifts. He will retain all of the category A tax allowance for a parent’s child, which currently amounts to € 335,000.

However, if he is 26 in the year, that will change. He and you will no longer be able to benefit from the exemption and any money you spend on fees or accommodation afterwards will be deducted from his lifetime Class A limit.

It should be possible to pay the full fee up front – assuming you can afford the expense – so they don’t fall after her 26th birthday. Regarding housing costs, you can still benefit from the annual exemption from small donations, which allows you to donate to your son up to € 3,000 each year without impacting his inheritance tax threshold.

Small gift exemption

If your son’s maintenance costs are shared between you and his father (or any other person), he can benefit from the exemption of € 3,000 for each donor, which could increase the allowance to € 6,000, or even more.

I know you said that the support you give your son is not a loan, but if these reliefs don’t cover the amount needed to keep him going after he turns 26, every future costs could be considered a loan.

The revenues require that family loans charge an interest rate at least equal to the prevailing interest rate on demand deposits. But with those rates currently at zero, they wouldn’t be a factor at this time.

The loan could then be repaid using the small gift exemption over two years or more without putting your son under financial pressure, which would seem to achieve your intention.

Finally, in terms of actual tax liability, it does not arise for you or your son in the scenario you are sketching.

Please send questions 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.

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