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When making a financial plan, it is important to consider if and how we can also help our loved ones. Passing money to family/friends is a significant decision which should be managed correctly.

Any investment or savings policy can be placed “in trust” for another or indeed for multiple beneficiaries on the death of a policy owner. The money will still be subject to inheritance tax however this provision ensures that on death the money is passed directly to the named beneficiaries without having to pass through probate, so it is an efficient way of ensuring money is passed to the receiving party without too much delay or controversy over who the funds are meant for.

The other matter which often arises is where people want to pass money to their loved ones, but they want to ensure they do so in a tax efficient manner. Sometimes they want to gift money, but they also want to retain full control over how the money is invested, especially when they are gifting to a person under the age of 18 years.

Capital Acquisitions Tax (currently 33%) is the tax which applies to gifts received if the value is over a certain limit or threshold. Different tax-free thresholds apply depending on the relationship between the disponer (the person giving the money) and the beneficiary (the person receiving the money). There are three different groups:

• Group A applies where the beneficiary, the person receiving the benefit, is a child of the person giving it and has a tax-free threshold of €335,000.
• Group B applies where the beneficiary is a brother, sister, niece, or nephew or lineal ancestor or descendant, and has a tax-free threshold of €32,500.
• Group C applies in all other cases and has a tax-free threshold of €16,250.

In addition to the tax-free limits above, anyone can gift another person €3,000 in any calendar year and the receiver of the gift is exempt from Capital Acquisitions Tax (CAT). This is known as the ‘Small Gift Exemption’. In fact, you may receive a gift from several people in the same calendar year and the first €3,000 received from each person is exempt from CAT.

The most common cases I see are parents or grandparents wishing to gift money to their children or grandchildren. Potentially each child or grandchild can receive up to €6,000 from a set of parents or grandparents. Aunts, uncles, and Godparents can make the same gifts without the child incurring CAT.

If you decide to gift a minor up to €3,000 per year, you can set up a savings policy written under a Bare Trust. A Bare Trust arises when money is placed in a trust fund in the name of the trustees but is treated as legally belonging to the child at all times. As ownership passes to the child immediately, Bare Trusts should only be used if the person gifting the money is certain that they will not require access to the funds in the future for their own personal use.

The person gifting the funds can be noted as a trustee on the savings policy giving them control over the decisions that are made about the investment, for example, where and how the funds are invested, how much investment risk applies etc.

If you are considering making a gift to a loved one, contact your Financial Advisor to guide and assist you on the best way to set up your policy.

Lisa Doherty BBS QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on lisad@jfl.ie