The €51,000 Mistake Hiding in Your Child's Savings Account

Saving for your children is one of the most straightforward good decisions a parent can make. Which is exactly why it's so frustrating how often it's set up in a way that quietly costs the child tens of thousands of euro later.

The saving itself is rarely the problem. The structure is. And by the time anyone notices, the damage is eighteen years old and cannot be undone.

First, how much you can actually give

Ireland's small gift exemption lets any person give any other person €3,000 per year, completely free of tax — and, crucially, without touching the recipient's lifetime threshold. It resets every calendar year, and it applies per giver, not per child.

So two parents can move €6,000 a year to a child — €500 a month — with no tax consequence whatsoever. Bring grandparents in and it's €18,000 a year. Over eighteen years, that is a very large sum moved entirely outside the tax net.

Separately, every child has a Group A threshold of €400,000 — the lifetime total they can receive from their parents before Capital Acquisitions Tax applies at 33%. Gifts and inheritances since 5 December 1991 all count towards it.

The mistake

Here is what happens time and again. A savings or investment plan is opened for a child, but it's taken out in the parent's name and simply left there. Nobody assigns it. Nobody sets up a trust. The paperwork says the parent owns it, because the parent does.

For eighteen years that looks harmless. Then the child turns eighteen, the money is handed over — and Revenue sees one single gift of the entire fund, made in one tax year. €3,000 of it is exempt. Every cent above that is charged against the child's €400,000 threshold.

The growth is the sting. Because the money legally belonged to the parent the whole time, all the investment growth belonged to the parent too — and it all transfers as a gift at the end.

What that costs, in real numbers

Two parents save €500 a month — precisely their combined small gift exemption — from birth to age eighteen. €108,000 contributed. At 4% net growth, roughly €158,000 at eighteen. House value of €500,000 (estate)

Same savings. Same fund. Same child. A difference of €51,256, decided entirely by paperwork completed — or not completed — eighteen years earlier.

Set up correctly, nothing is assessed at all. Each year's €3,000 per parent is covered by the small gift exemption as it goes in, and because the money is the child's from day one, all the growth is the child's too. Growth on your own money is never a gift.

Why one-child families get hit hardest

A family with three children has three separate €400,000 thresholds — €1.2 million of tax-free capacity to work with, and room to absorb a mistake.

An only child has one. Everything the parents ever pass on has to funnel through a single €400,000 allowance. Burning €155,000 of it on a savings account — money the parents had already saved out of taxed income — means nearly 40% of that child's lifetime allowance is gone before the parents' home, pension or estate is even considered.

How it should be set up

Five things need to be right:

• 1. The child must be the beneficial owner from day one. Either a bare trust with a written trust deed, or a policy assigned to the child at outset. Not a plan sitting in a parent's name with a child's name in the notes field.
• 2. Contributions should come from each parent separately. Two €3,000 gifts need two identifiable givers. Everything paid from one account can be difficult to evidence as two separate exemptions years later.
• 3. Stay within €3,000 per giver per calendar year. Go over, even slightly, and the excess starts eating the threshold. The exemption does not carry forward.
• 4. Register the trust with CRBOT. Bare trusts must go on the Central Register of Beneficial Ownership of Trusts, generally within six months of creation. Skip it and the provider may refuse to release the money years later until it's fixed.
• 5. Keep a simple annual record. Date, amount, who gave it. A single page per year is enough, and it is the difference between a clean position and an argument with Revenue two decades on.

The honest trade-off

Doing this properly means the money genuinely belongs to your child. With a bare trust, they are absolutely entitled to it at eighteen — and they can spend it on whatever an eighteen-year-old wants to spend it on.

That is a real consideration and it deserves a conversation rather than a form. For some families a different structure suits better. But that decision should be made deliberately, with the tax consequences understood, not by default because nobody raised it.

Get it looked at

If you already have savings running for a child, it is worth ten minutes to check whose name it is actually in. If it's set up correctly, we'll tell you so and you can stop wondering. If it isn't, the sooner it's addressed the less it costs — and doing nothing is the single most expensive option.

Figures correct at time of writing. The Group A threshold is €400,000 and CAT applies at 33%. Investment growth of 4% net is illustrative only and is not a forecast; the value of investments can fall as well as rise. Worked examples assume no other gifts or inheritances have been received. This article is for general information and does not constitute personal financial, tax or legal advice. Trust structures have legal and reporting obligations — please take advice specific to your circumstances before setting up or changing arrangements for a child.