I understand the Revenue rules on the small gift exemption of €3,000. However, I have a question around the account that can be used for a small child (under 7 or even a baby).
Most banks and An Post will not allow an account in the name of the baby only. Will Revenue accept an account that is in the name of the parent and the child as being the child’s account for the purposes of this annual gift?
The small gift exemption is something that crops up a lot in this column so it’s good to hear that you are comfortable and familiar with what can be a valuable tax planning feature.
Quite how to avail of the €3,000 annual tax-free gift for children or grandchildren always throws up this concern about just how you can do so in a way that does not fall foul of the Revenue and ensures the funds will actually be enjoyed by the intended beneficiary. This is especially the case for very young children who, understandably, cannot open a bank or post office account themselves in their own name.
However, the good news is that all the main banks, as well as An Post and credit unions, appear to have processes in place that will allow you to open an account for a child – sometimes with their name formally on it; other times not.
How you do so can be convoluted to a greater or lesser degree, depending on the institution. Not all of the options are ideal as some do have fairly modest upper limits – at least for people like you who may wish to put up to €3,000 into such an account each year until the child reaches a certain age.
Doing so for 16 years, for instance, would see an account of €48,000 even before you take account of interest. Speaking of interest, my experience of these accounts is that the interest available on most of them is fairly derisory but that appears to be the price you pay for having the account focused on the minor.
So what are the options?
At AIB, an account can be opened in the name of the child, even where they are under the age of seven with the consent of their parents. It can also be opened in joint names.
Most importantly, even if it is a grandparent gifting the money, you’ll need the parents as only they can open the account and will have to be physically present in the branch to do so. They will require the child’s birth certificate and proof of identity for the child and the parent(s) or legal guardian(s) as well as proof of address.
I gather AIB has some accounts that can be opened in the joint name of the child and the grandparent but you’ll need to ask them for more details if that’s relevant for you.
At Bank of Ireland, the rules are quite different and, in general, more restrictive. It does not allow the child to be named – regardless of what parents agree to – although the name of the child can be noted on the account as the intended beneficiary which should work for you – and Revenue.
It allows accounts to be opened in the name of either a parent or grandparent although, as with AIB, the parent will need to visit a branch to open the account and provide poof of ID, address and their personal public service (PPS) number.
However, while it would allow you to make lump sum payments of up to €10,000 a time – more than enough to cover the small gift exemption, it does require regular monthly lodgements. So you will, in effect, have to set up a direct debit or standing order to pay €250 a month into the account to achieve your intended €3,000 annual gift.
The last of the three big banks, Permanent TSB, also insists any account for children under seven is opened in the adult’s name with the child’s name just noted on the account paperwork. That adult can be a parent, a grandparent – or even a neighbour. They will need to provide proof of their identity, address and PPS number.
EBS, which is now part of AIB, will allow accounts in joint names with a parent or grandparent although, again, the parent will need to attend in branch to open it. On the paperwork side, you will need the child’s birth cert and proof of identity and address for the adult and the child as well as the PPS number for both.
The big downside here is that the account balance is capped at €5,000 which makes it pretty useless for what you intend.
In general, when it comes to managing the account – and especially withdrawals – that will be under the control of either the parent or the adult jointly named on the account up to a certain age, after which the young person assumes some control. Quite when depends on the institution and the guidance of the parents when it was opened.
Accounts where the child’s name is only noted can be transferred into joint names, or even, at some point, into the child’s sole name but that will require further paperwork for prove the child’s ID and address.
An Post says it will open a deposit account in a child’s name, regardless of age, as long the parent agrees. The parent will have control of the account at least until the child turns seven; after that, with parental consent, the child can assume control.
On wider State savings sold through An Post – savings certificates and bonds, including Prize Bonds – joint applications can be made though children will not be allowed withdraw from them until they turn 18, which may suit you. Interest here is tax free which is another plus.
In terms of ID, you’ll be put through the standard checks for identity and address, including PPS number.
Credit unions all operate individually but a few I checked seemed open to accounts for children – most likely in joint names – as long as a parent is already a member.
For all institutions, proof of ID will generally be a passport or driving licence, and a birth certificate for a small child, with a recent utility bill offering proof of address and proof of PPS number coming most likely from a payslip or even your Drug Payments Scheme card. But check in advance. You don’t want to be making appointments with banks to open accounts only to find you need to source additional information and come back again.
The main thing the Revenue wants to be sure of is that the money is not simply being channelled to a third party – Ie from a grandparent to a parent so it is important how any of the above accounts is managed to make sure there is no blurring of the lines. Withdrawals from the account while the child is still a minor – and especially before the age at which that have any say in how the account is managed would clearly raise concerns.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to email@example.com. This column is a reader service and is not intended to replace professional advice