Revenue is clamping down on abuse of tax exemptions granted for payments made by parents to their children.

However, legal firm Arthur Cox says the change means adult children forced to return home out of economic necessity could be obliged to keep tabs on and return for tax the “notional cost” of renting their own room in their parents house, and even the value of food, light and heating.

Items such as a contribution to wedding costs, or the care of children by grandparents, could also have a tax implication, said Arthur Cox solicitor Anne Corrigan.

“There appear to be fundamental difficulties with this proposal and, if the specific exemptions are altered in the manner proposed, it is likely to lead to widespread dismay when its implications become known and fully understood,” she said.

The Finance Bill proposes to amend a section of the Capital Acquisitions Tax Consolidated Act. Section 82 of the Act states that money paid by a parent for “support, maintenance or education” of a child will not be considered as a gift or inheritance for tax purposes where it would be considered “normal expenditure” of a person in the parent’s circumstances and is “reasonable having regard to the financial circumstances” of the parent.

A Revenue spokesman said it was felt the existing measure was “open to abuse and was being abused”. Maurice O’Donoghue said exemptions had been claimed on cash gifts and sites of land worth up to €150,000 or €160,000, cars and large pieces of household furniture.

Limits proposed

As a result, the Finance Bill proposes to limit the exemption to gift or inheritance tax to children under the age of 18, or under 25 if they remain in full-time education. Payments by a parent to an adult child above the €3,000 annual small gift exemption threshold, would be liable to tax.

“The concern was that this was being applied by practitioners and disponers to large types of capital gifts rather than normal expenditure,” said Mr O’Donoghue. The tightening of the rules in the Finance Bill was to protect the exemption from “spurious claims”, he said.

Ms Corrigan said the measure would require families to keep a ledger of the monetary value of gifts, a practice she said would be unworkable.

“There seems to be a significant risk that they will simply undermine the integrity of the tax system and that will be the case if they are put on the statute book only to be widely ignored in practice.”

Mr O’Donoghue dismissed such a prospect. “Revenue will not be imputing a taxable value for those kinds of issues for people living in the family home,” he said. He said that to do so would “bring the CAT Act into disrepute”.