Conor Murray • 24 Jan 2019
Save for your children’s future and make use of the small gift tax exemption!
Remember your first piggy bank or putting your pocket money away to save for something in the short term? Saving is something we have learned from an early age but as we get older our savings plans become bigger and bigger.
For all parents the cost of raising children increases year on year right up until they are ready to fly the coop. A lot of parents underestimate the costs needed to provide for their children’s future education and end up borrowing to meet these costs. Providing a child with the best education is what every parent wants for their children – but it doesn’t come cheap.
Education is not the only headstart a parent wishes to provide for their children and giving a helping hand with buying their first home, their first car or setting up in business are all important considerations for the future. By taking the time now to plan for the years ahead you can become the architect of that very future.
The first step in giving your child the best start in life is by taking action now. The earlier you start saving, the more money you will have available to support them as they begin their journey. In setting up a savings plan you should ensure you ae making effective use of the annual small gift tax exemption. Anybody can gift up to €3,000 tax free per annum to their child, grandchildren or anyone else or even multiple persons and this gift will not impact on the recipients appropriate group tax free threshold for Capital Acquisitions Tax.
Capital Acquisitions Tax incorporates a Gift Tax and an inheritance Tax whereby gifts and inheritances over a certain value or threshold can be taken subject to a tax liability. In any year the first €3,000 is not taxed and does not reduce the threshold available. This is referred to as the Small Gifts Exemption and the key is that the recipient or beneficiary must get ownership of the money and the person gifting it loses control of it. How the plan is set up will depend on how old the recipient or beneficiary is and we at CMCC Financial Solutions can help you with this.
How does the plan work?
The mechanics of this plan are exactly the same as any regular saving plan in that you make a regular monthly or annual contribution to the arrangement. This payment is invested in your chosen fund from a range of funds available in the market and this fund selection will apply for the life of the plan.
To ensure these savings maximise the Gift Tax Exemption for your child, you then legally assign the plan to that child and we at CMCC Financial Solutions will arrange the necessary documentation to do this. By assigning the plan to your child, the child will be entitled to the proceeds of the policy tax-free because they are the owner of the plan as assignees.
Start Saving Now
Setting your savings plan up under the above structure is a creative way to give your child a headstart in life when it comes to financial matters. This structure allows you to maximise the gift tax savings for your child or children by enabling you to legally assign the plan to your child, thus making full use of the annual gift tax exemption limit of €3,000 from any individual or €6,000 from a married couple.
At CMCC Financial Solutions we have access to a wide range of investment funds which are available to make investing simple for you. We are here to help you choose a fund that best matches your attitude to investment risk in conjunction with the number of years you wish to save. By investing in these funds you can access a broader portfolio of assets than could be achieved by an individual saver.
The value of your investment is linked to the value of the underlying assets in the funds you select and it is important to note investment values can fall as well as rise. Starting a savings or indeed any investment plan is an important step on your journey but ensuring you review the arrangement at least once a year is crucial.