Gifting money to kids- tax implications

niceoneted

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New to being a parent and as it stands we are lucky to manage to save children's allowance and I'm also putting away a small bit out of my wages. College fund I suppose or for when they are older and possibly might have an expensive hobby!
A close friend mentioned to be cautious re tax implications for our kids. So say for arguments sake we manage to put away 5k a year per child (2kids) thereby they have 90k at 18 for college etc will there be tax implications or is there a way I can avoid this. So far the money is saved in a join account(parent and child). TIA for any or all advice.
 
I understand you can gift €3000 per annum tax free to your child. I don't know how the bank account works - I heard on the radio that you can put it into a bank account and your children don't have to know about it - I would be interested to find out how this can be done.
 
Yes, each parent and anybody else can gift each child €3,000 per year. In my opinion, I think the best place to put the money is into a Post office account or Prize Bonds. Anything originating from the Post Office is guaranteed by the State. As time moves on, you will hear loads of Pub talk and how you should go into this fund or that fund. For the sake of your children, DO NOT. When the time is right pick a fund run by a Foreign provider, i.e. Standard Life, Zurich, Aviva. Anything run by an Irish Company is weighed down by an inclement fee structure where you will never know or be told how their commissions are paid. The Government refuse to change the rules by forcing these companies to release the TER (total expense ratio).
Good luck with and for your kids.
 
In a world where interest rates are zero and inflation will nibble away at the real value of the money, I would buy something diversified that should increase in value, but that won't cause other tax issues by generating income.

e.g. Berkshire Hathaway
 
What a fantastic idea !!! Berkshire shares are $216,200 per share, so in reality, I don't think the OP is thinking gifting some of them to his kids. But maybe, different strokes for different folks,
 
What a fantastic idea !!! Berkshire shares are $216,200 per share, so in reality, I don't think the OP is thinking gifting some of them to his kids. But maybe, different strokes for different folks,

It's funny when someone posts a sarcastic retort and it turns out that they have no idea what they're talking about.

The A shares trade at something north of $200k.

The B shares trade at around $150 a share.
 
It was never mentioned whether it was intimated as A or B shares, No financial adviser in Ireland would suggest investing in these equities for minors, especially where the figure head is in his 80s and of poor health. But this is Ireland, where people always prefer to flutter monies in the hope of a jackpot win. Remember, the OP has considered Tax implications whilst investing for his kids.
 
It was never mentioned whether it was intimated as A or B shares, No financial adviser in Ireland would suggest investing in these equities for minors, especially where the figure head is in his 80s and of poor health. But this is Ireland, where people always prefer to flutter monies in the hope of a jackpot win. Remember, the OP has considered Tax implications whilst investing for his kids.

Right...

So when I suggested buying something like Bershire Hathaway with the €3,000, and you lampooned me on the basis that the shares trade at circa $200k each, you knew that the B shares existed?

As for this latest post, what on earth are you talking about? Nobody mentioned someone in their 80s or someone in poor health.

The "advice" that you're giving to invest in the post office or in prize bonds is lazy and ignores the effects of inflation which can and probably will devastate savers over the coming years, especially someone like a young child with a decent time horizon.

With a view to keeping things simple from a tax perspective and from an administrative perspective, I would suggest either Standard Life's Bare Trust product into a higher risk MyFolio or some Berkshire Hathaway (or similar). Something in the life company space where tax is dealt with at source or something that doesn't pay a dividend thus avoiding any messing with Form 11s etc.
 
I think the Childcare Plus product offered through An Post is an excellent vehicle for saving child benefit payments for the medium term.

It provides a decent, tax-free, State-guaranteed return with zero nvestment costs. For sheer convenience it's hard to beat.

Personally, I wouldn't invest in any single stock or equity based fund with an investment horizon of less than 20 years. I appreciate that many will find that overly conservative.

Remember that inflation reduces the real return on all investments - equities are not exempt.

Also, don't forget that there is no logic to saving for the medium term a rate that is lower than the rate that you are paying on any debts you might have (including any home loans).
 
This discussion relates to an 18 year time horizon which is fine for a higher risk investment strategy.

By higher risk, all I mean is a higher equity content (diversified of course).
 
This discussion relates to an 18 year time horizon which is fine for a higher risk investment strategy.

By higher risk, all I mean is a higher equity content (diversified of course).

Some thoughts:-

1. Child benefit payments are currently €140 per month. Stockbroking commissions and other costs at those modest levels will take a significant "bite" from the amounts being invested.

2. Given that we are talking about an ongoing savings plan (and not a lump sum investment) the vast bulk of the savings will not be invested for anything like 18 years.

3. In any event, I personally disagree that 18 years is fine for a higher-risk (equity) investment strategy.

We have recently passed through a 30-year period where long term US treasury bonds outperformed the S&P500 and there have been similar periods where equities under-performed bonds in all major economies.

US stocks took 15 years to fully recover their value after the 1929 crash, with all dividends re-invested. Japanese stocks are still well below the peak reached in 1989 - that's 27 years and counting. Government bonds would obviously have very comfortably outperformed equities in both cases.

4. Even if an equity investment does outperform the State savings product, after all costs and taxes, the absolute monetary amount is likely to be modest given the relatively small sums invested. Is it worth the risk and hassle?

5. By most measures global equities are richly valued at present and most commentators are of the view that the expected return on global equities will be modest over the coming decade.

6. Will the OP have the emotional fortitude to continue investing in equities during the inevitable market drawdowns? Most investors baulk at investing in equities during those periods.
 
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Sarenco, that's why it's up to advisers to do their job and advise people with adequate time horizons that the Post Office will not be their friend and that equity markets are likely to be their friend. Every chart that I have seen indicates that equity markets are neither cheap nor expensive right now...they're in a "zone of reasonableness". To claim that an 18 year time horizon is not "fine" for a globally diversified equity portfolio is outrageous. Mother of God, even the guy who invested prior to the 1929 crash was fine by your own reckoning!
 
Sarenco, that's why it's up to advisers to do their job and advise people with adequate time horizons that the Post Office will not be their friend and that equity markets are likely to be their friend.

Of course one aspect of State savings products that advisers absolutely hate is the fact that they can't make any fees on them - they are certainly not adviser-friendly!

To claim that an 18 year time horizon is not "fine" for a globally diversified equity portfolio is outrageous.

I actually wouldn't invest in any equity investment for anything less than a 20-year horizon. I certainly accept that is a conservative viewpoint but it's hardly "outrageous".

Again, in the OP's case the bulk of the money will not be invested for anything like 18 years - this is not a lump sum investment. You also have to take account of investment costs, which will be prohibitive at these modest levels. Not to mention all the hassle of making tax returns, etc.

Every chart that I have seen indicates that equity markets are neither cheap nor expensive right now...they're in a "zone of reasonableness".

"Zone of reasonableness" sounds like stockbroker-speak for richly valued to me. In any event, hopefully we can agree that stocks are hardly cheap.

Mother of God, even the guy who invested prior to the 1929 crash was fine by your own reckoning!

The guy that invested prior to the 1929 crash would have been absolutely destroyed if he had to liquidate his stocks to simply feed his family or pay his taxes. Even if he could have weathered the storm, he would have been far better rewarded if he had been invested in government bonds during that period.
 
Thank you Joe_90 for that link. I just couldn't find that myself vi was probably searching wrong place.
Do I need to do an annual return to revenue to say I've gifted the money?
No other debts, apart from mortgage which is tracker .5 above ECB with 75k approx remaining. This will be cleared when kids are 12.
 
Do I need to do an annual return to revenue to say I've gifted the money?

No, at the moment, all you are doing is saving to pay for their education. You haven't actually gifted them any money at all.

If when they have finished college, you are lucky enough to have money left in the account ( which is not a certainty at this stage) and you generously decide to give it to them, then you can worry about the CAT implications.

Personally, I'd take the money and go on a long holiday.
 
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