Using the Small Gift Exemption & Bare Trusts to Build Wealth for the Next Generation
Inheritance Tax has been a hot topic in the media lately, and many of our clients have been asking how they can efficiently pass on wealth without incurring unnecessary tax burdens. One particularly effective strategy that parents and grandparents are using is the Small Gift Exemption in combination with a
Bare Trust Investment Account.
How the Small Gift Exemption Works
In Ireland, any individual can gift up to €3,000 per year to another person without triggering Capital Acquisitions Tax (CAT) or Gift Tax. This means that parents, grandparents, or even family friends can each contribute up to €3,000 annually to a child, grandchild, or any chosen beneficiary—completely tax-free.
Over time, these gifts can add up to a substantial transfer of wealth, all while remaining outside of inheritance tax calculations.
Why Use a Bare Trust?
A Bare Trust is a simple and tax-efficient way to invest these gifted funds, ensuring they grow over time. Here’s how it works:
- The donor (e.g., a parent or grandparent) provides the funds.
- The child (or chosen beneficiary) is the absolute owner of the assets within the trust.
- The trustee (often a parent) manages the assets on behalf of the child until they reach 18 years of age.
By investing the funds through a Bare Trust, families can potentially enhance long-term returns while keeping wealth accumulation tax-efficient.
📌 Want to learn more about how Investment Accounts work, including fees and options? Check out our previous blog post here.
The Benefits of This Strategy
- Tax Efficiency – The Small Gift Exemption allows wealth to be transferred gradually, avoiding inheritance tax liabilities.
- Investment Growth Potential – Funds in a Bare Trust can be invested, maximising long-term financial growth.
- Future Financial Security – The accumulated savings can be used for education, property deposits, or other major life events.
- Flexibility – Multiple family members (e.g., parents and grandparents) can contribute, increasing the total tax-free amount transferred each year.
Example over 10 Years
Imagine a set of grandparents each gifting €3,000 per year to their grandchild. The child’s parents also contribute €3,000 each annually. That’s a total of €12,000 per year invested in a Bare Trust Investment Account for the child.
Over 10 years, assuming moderate investment growth, this could accumulate into a significant financial nest egg—providing a solid foundation for the child’s future.
Important Considerations
- Irrevocable Ownership – Once placed in a Bare Trust, the assets legally belong to the beneficiary and cannot be reversed.
- Tax on Investment Returns – While the gifted funds are tax-free, any investment growth may be subject to tax, which is typically managed by the Bare Trust provider.
- Professional Advice is Key – To ensure compliance with tax rules and suitability for your specific situation, professional financial planning is recommended.
Final Thoughts
Leveraging a Bare Trust investment account alongside the Small Gift Exemption is a smart and efficient way to transfer wealth across generations, minimise tax liabilities, and benefit from long-term investment growth. With careful planning, families can build a lasting financial legacy for the next generation.
🎁 Looking for a meaningful gift for your children or grandchildren?
Forget toys and tech—the best financial gift you can give is a head start in life.
By using Ireland’s Small Gift Exemption, you can gift up to €3,000 per year, tax-free, and invest those funds in a Bare Trust Investment Account for long-term financial growth.
Planning for Today, Tomorrow and the Unexpected
At Lynx Financial Services, we believe financial planning shouldn’t be complicated or overwhelming. That’s why we take a personalised, straightforward approach, helping you save for today, tomorrow, and the unexpected.
No jargon. No hidden fees. Just clear, honest advice tailored to your goals.
Whether you’re looking to grow your investments, plan for retirement, protect your family, or secure the right mortgage, our expert advisors are here to guide you every step of the way.
Your financial security is our priority, and as a member of Brokers Ireland, regulated by the Central Bank of Ireland, you can trust that you’re in safe hands. Wherever you are in life, whatever your financial goals – we’re here to help. Get in touch for a no-obligation chat.
