Tom and Louise have recently become grandparents of Oisin and have decided to set up a children’s small gift exemption savings plan for him.
Under revenue rules, they can both gift him €3,000 per year and still avoid any capital acquisition tax liabilities for Oisin, either now or in the future. This gift doesn’t affect or reduce his €40,000 lifetime Capital Acquisition Tax exemption threshold limit.
They set up this tax-efficient savings plan and started contributing €500 per month from one of their joint bank accounts.
Tom, the trustee of the policy, was chosen to manage the investments until Oisin is over 18. Oisin can take over the management of this savings plan at this stage. However, until then, he cannot access or withdraw any of these savings.
Tom decides to invest the savings plan funds in a Balanced multi-asset fund with a main Insurance Company that provides these plans.
This fund is classed as medium risk and has a 20-year track record of generating a net return of 7% per annum
If Tom & Loise continue contributing €500 per month and invest in the
balanced multi-asset fund until Oisin’s 18th Birthday, generating a net
average annual return of 7%, the compounded value of Oisin’s fund on his 18th birthday will be close to €160,000.
All these funds will be exempt from the Capital Acquisition tax, and Oisin
can use the savings pot to pay for his college education or indeed help him with a deposit for his first property purchase when the time comes.