Many parents and grandparents want to give gifts to their loved ones, but often want to retain control over how the money is invested. And do it tax efficiently.

Using a bare trust:

A bare trust can help you invest cleverly for your loved ones today by enabling your beneficiaries avail of today’s Capital Acquisition Tax (CAT) thresholds and small gift exemption.

The bare trust is a solution for those that want to lock into and utilise todays CAT thresholds and small gift exemption. So it is about gifting at an amount below these. Thus reducing the potential liability for CAT.

You can receive an aggregated amount from all people within each group throughout your life. Today’s CAT thresholds are below. Tax is charged at 33% on gifts and inheritances above the threshold.

Using a bare trust you can gift monies to a loved one – ideally under the threshold. The trustees can choose to invest this in a life assured investment bond. The bond is taxed on a gross roll up benefit so exit tax is only applied on exit/every 8 years.  E.g. I gift 200k into a bare trust today for my daughter. In 7 years’ time she is 18 and the bond has grown to 300k. She legally received the gift today and only used up 200k of her threshold amount. She withdraws the money from the bond at age 18 when only exit tax is applied. Exit tax is currently 41% of the gain realised on a investment policy. It is deducted and paid by the provider.

Another option is to utilise the ‘small gift exemption’

You may receive a gift up to the value of €3,000 from any person in any calendar year without having to pay Capital Acquisitions Tax (CAT).

Each grandparent/parent can gift each of their grandchildren/children an amount of €3,000 every year and these accumulated gifts will be excluded from the lifetime thresholds. So over a 10 year period – a child could receive a combined €30,000 from each grandparent, or €60,000 in total.

A tax saving of nearly €40,000……

And even better, over a 20 year period, this would accumulate to €120,000 per child, assuming both grandparents gift the maximum each year. Given the current inheritance tax rate is 33%, this could equate to a tax saving of nearly €40,000.

Having a robust legal structure such as a bare trust allows the trustees to invest the money on the beneficiary’s behalf, change investment instructions and withdraw and appoint the funds as appropriate.

It is the trustee’s responsibility to inform the beneficiary that they have these assets/investments and transfer them to the beneficiaries when they request them (once over 18).

We hope you find this article to be of interest, please feel free to contact Ross or Trish on 01 4972544 to discuss how best to share your wealth.