Gifting Kids Money

[DublinAnthony45]

Prob answered before but want to be able to state my circumstances etc to give a better idea of how to manage my question

so i'm a single dad ( 46 soon ) and have 2 small kids ( boy 15 and girl 13 )

I recently sold an investment property i held for 20 years , after sale and tax etc i made €208k

i have allocated approx €35k to the house i'm in now ( paid off 2 years ago and is my PPR )

i have approx €150k i want to put away for the kids and possibly add to this over the years , its not for holidays or a new car but more to help with a modest car or towards a house deposit

they currently have revolut junior accounts linked to my account ( their mother is an admin also so she can add pocket money weekly etc )

i know i can gift them €3k each per year , but how do i go about that seeing as they have revolut jnr accounts etc

do i hold onto the money in a 3% account till they are 18 and have actual bank accounts and in the mean time just pay the 33 % dirt on the interest accrued ?

house i have now is mine and mine only , never married and will eventually go to he kids hopefully longdown the line , their mother is in similar situation in having her own house ( with mortgage ) which will go to the kids again down the road

 

[Sue Ellen]

These two previous AAM threads might be worth a read in relation to the Small Gift Exemption:

Revenue rules that annual small gift exemption must be actually given and not just "earmarked".

Interesting article in the independent; (https://www.independent.ie/irish-news/man-32-who-received-almost-500k-from-parents-fails-in-tax-battle-with-revenue-despite-communion-money-claims/a845644263.html) I would tend to agree with the ruling here that the small gifts from parents was...

www.askaboutmoney.com

Small Gift Exemption, older kids, 1 gift possibly in a trust

Hello, Myself and my husband would each like to gift our 2 children the max Small Gift Exemption of 3K per year, each. We are married . We would like to do this for the foreseeable future – basically as long as we can afford to . As we understand it, we could gift 6K between us to each child...

www.askaboutmoney.com

 

[HappyLuck]

Hi My two cents worth, is reflect on what you want to achieve and be sure. €150K is a lot of money, you might want consider talking to someone about a trust tbh so you can understand the tax implications & how trusts work. The only thing at 15 & 13 years college is not to far away and you may want to keep some of the funds aside for that.

 

[TomEdison]

You can give each of your kids 400k in aggregate before they have to worry about CAT at all.

I appreciate that, because they each have a half-share in a house coming to them eventually, they could well end up getting more than 400k, but it's only the excess over 400k that attracts CAT. And, using the 3k/year small gift exemption, between now and age 18 you can only give the boy an extra 9k before CAT will kick in, and the girl an extra 15k. Not chickenfeed but also, in the scheme of things, not a huge deal.

I wouldn't stress too much about the DIRT. For the girl, if you put the money into an account in your name you'll build up to 15k over 5 years on a straight-line basis. Let;s call it an average balance of 7.5k, at say 2% interest gives you about 750 interest in total. DIRT on that will be about 250 over the five years. Not nothing but certainly not an amount that should be driving your decisions here.

If you want to avail of the small gift exemption you can put money into the kid's bank accounts. But presumably they can draw it out (I'm not sure what restrictions are placed on them with a revolut junior account) and you might not want them to be able to do that.

You can open an account for each of them in your own name, but designated as "gifts for little Johnny" or whatever and pay 3k a year into that. You control that account. But when each of them turns 18 you have to actually give them they money - e.g. transfer it to accounts that belong to each of them. Otherwise the Revenue will likely argue that, notwithstanding the designation on the account you paid the money into, you weren't really making gifts to them at all.

If your concern is that they will blow the money on high living pretty shortly after they get it — yes, that's a risk. Try to raise kids who won't do that, but don't blame yourself if they do. It's a risk you have to run. The whole point about a gift is that you give it to them, and if you give it to them it's theirs and they can do what they like with it. If you arrange matters so that they can't do what they like with the money, you haven't really given it to them, have you?

If you fear that they will be too young to handle the money responsibly, you always have the option of hanging on to the money and not giving it to them until you think they have the wit to handle it, or until they are actually buying a house and need a deposit, or whatever. By doing that you forego the (I think fairly marginal) tax benefit of utilising the annual small gift exemption, but I don't think that should be the primary driver of your decisions here.

 

[ClubMan]

And, using the 3k/year small gift exemption, between now and age 18 you can only give the boy an extra 9k before CAT will kick in, and the girl an extra 15k. Not chickenfeed but also, in the scheme of things, not a huge deal.

I don't understand. The small gift exemption applies regardless of the recipient's age.

 

[faketales]

So approx 75k per kid.

I believe you can cover all college expenses outside of small give up to 25.

You could also wait until they are 18 to transfer 3k a year for example by 30 you could have given them 36k each.

 

[TomEdison]

I don't understand. The small gift exemption applies regardless of the recipient's age.

You're quite right. I'm confusing two issues. In my defence, it was late at night (for me) when I posted.

Let me separate the two issues.

While the kids are under 18, OP can give each of them 3k a year to avail of the small gift exemption and retain control of the money himself. But, when they turn 18, they then get full access to, and control over, the accumulated value of all the 3k gifts made up to that point. So if OP's intention is that this money is for large expenses, like a house deposit, and he doesn't trust his barely-adult kids not to fritter it away, he shouldn't make annual gifts of 3k each. By not doing that, he forgoes the benefit of the small gains exemption for the years between now and 18, but to my mind that's actually a pretty marginal consideration, and his decision here should be driven by the non-tax issue of whether he wants to give his kids money now, or later.

OK. When the kids turn 18, what's the position. If he continues, or starts, giving them annual 3k gifts, they can spend the money as fast as they receive it. So he'll have to make a judgment about whether to run that risk. He doesn't need to make that judgment until the kids turn 18 .

When he does come to make it, there are three possiblities.
1. He reckons his kids will spend the money on avocado toast, expensive mobile phones, exotic holidays and other fripperies as fast they can, as (I'm reliably informed) all young people do, these days.
2. He's absolutely confident that his kids will invest the money prudently, and in due time use it as a deposit on exactly the house he thinks they should buy at exactly the time he thinks they should buy it.
3. He thinks his kids are not fools but he recognises that their priorities and values are not necessarily his, and that they may make decisions that are not the decisions he would wish them to make.

If he arrives at judgments no. 1 or 2, his decision is easy. Unfortunately he's much more likely to arrive at judgment no. 3, and that's the one that is likely to give him the dilemma. The stakes are bigger here because we could be looking at, what, 10, 15 years after turning 18 before each kid actually buys a house (at which point all the money is going to be given to them, and damn the CAT consequences). So by using the SGE for 10 or 15 years he may save the kids from CAT on 30k-45k each.

But the downside is giving up control of 30k-45k each and accepting the possiblity that the kids may not, in fact, use it to buy a house, or whatever, but instead spend it on something that is more valuable in their eyes but less valuable in his. Could be bumming around the world for two years; could be a flash car; could be anything.

But, the point is, he shouldn't be making this call now — he's in a much better position to make and act on this judgment when each kid actually turns 18. So, right now, all he has to decide is whether to make 3k gifts each year until they turn 18. That's a less high-stakes question — less CAT is saved, and less money is available to squander, if the kids do turn out to be the squandering type.