Dáil Éireann debate -
Thursday, 24 Oct 1996

Vol. 470 No. 6

Written Answers. - Taxation Status of Adopted Children.

Seamus Brennan

Question:

32 Mr. S. Brennan asked the Minister for Finance if his attention has been drawn to an apparent anomaly in the tax code, where an unofficially adopted child is recognised for income tax purposes, but is not so recognised for inheritance tax purposes; and if he will make a statement on the matter. [19630/96]

Minister for Finance (Mr. Quinn)

Under the income tax code a child who is not the child of a claimant but who is in the custody of the claimant and is maintained by the claimant at his or her own expense for the whole or part of the year of assessment qualifies as a "child" for the purposes of:

(a) the income tax widowed parent and lone parent allowance (currently £2,150 and £2,650 respectively);

(b) the special income tax allowance for widowed parents in the three years following the year of bereavement (£1,500 in the 1st year, £1,000 in the 2nd year and £500 in the 3rd year);

(c) the child additions to the income tax exemption limits (currently £450 for the first and second child and £650 for the third and subsequent children); and

(d) health expenses relief.

It should be noted that this income tax treatment is based on the concept of the actual maintenance of the child not on whether the child is unofficially adopted.

For capital acquisitions tax purposes a gift or inheritance taken by a child who has not been formally adopted qualifies for the Class III exemption threshold of £12,170 where the child is a stranger in blood to the disponer. The transfer of assets from parents to children of the parents (including adopted children) is dealt with under the Class I threshold, which allows assets up to a value of £182,550 to be transferred free of capital acquisitions tax. The Class II threshold of £24,340 applies to transfers between certain other relatives such as brother/sister, uncle and aunt/nephew and niece and grandparent/ grandchild. In addition under section 58 of the Capital Acquisitions Tax Act, 1976 certain lifetime gifts for the purpose of support, maintenance and education are exempt from capital acquisitions tax where the disponer is acting inloco parentis. This provision is, thus, in line with the income tax treatment where the income tax allowances are in recognition of the expense involved in the maintenance of children.

The three different thresholds in capital acquisitions tax mentioned above are based on the different legal relationships of the beneficiary and the disponer. An unofficially adopted child does not come within the definition of a child for the Class I threshold for legal reasons. The concept of unofficial adoption is very vague and it would be inappropriate to extend the Class I threshold to such situation based on such a vague description.