Bank of Mom & Dad

Jewish weddings are a hoot. We could learn a lot from them – and maybe we should. Religious vows play their part but the Rabbi wears civvies these days. Interestingly and very tellingly, before the ceremony the bride and groom stand at the top of the room with open arms to accept gifts and cheques signalling an exchange of funds from the older, affluent generation to the younger lovebirds. In a notable display of exuberance, the donations are publicly declared so that all guests are aware of what the others have contributed. There is much chin-wagging, giggling and nodding of approval – but the transparency is inspiring.

It’s puzzling that the taxman doesn’t take a keener interest because the exercise is simply a method of transferring wealth from one party to another without making a revenue declaration. Such transfer of wealth takes place in every walk of life – more often in return for something a little more substantial than a pearly smile and a new frock.

In everyone’s working life we expend some labour in return for a wage. The wage gets spent in a variety of ways and each recipient sees it as income. So, my spending is your income, and your spending is my income in an elegant, ever-repeating, circuitous twirl.

The same exchange is evident in business. A new start-up company has enthusiastic partners who have no money. Investors like the idea (all smiles and new suits) and hand over the cash. This transfer of wealth may be subject to some legal contract but the same rules apply as at the Jewish wedding. Investors in start-ups either get nothing in return or they are remembered very fondly and duly rewarded when the business becomes successful.

These principles do not differ when governments are involved in the transactions. Sovereign states woo potential partners not with windfall pay-outs but with long-term promises. Large quantities of money slosh around in bond markets that are nothing more than a convenient platform where a transfer of wealth can take place. This is such a long-term experience (like marriage used to be – Ed) where many investors are happy never to get their money back – the gifts just roll over and continue on ad infinitum.

The bank of Mom and Dad was always a thing for the upper classes – today it’s much more mainstream. In most cases, the parents’ wealth will ultimately transfer to their offspring. Tax authorities see such transfers as gifts when all parties are alive and inheritance when the parents are dead. Annoyingly, different tax rates and thresholds apply to what effectively is the same transfer of funds.

The Revenue Commissioners have seen their DIRT tax intake decrease substantially in a 0% interest-rate environment and they have reminded us that tax must be paid on loans from the bank of Mom and Dad. They would do well to heed the old Jewish proverb, which solemnly states:- “Long-term promises beget longer-term promises” – Mazel tov, altz iz gut!