tax liability for minors

AvonEnniskerry

I've a 1 & a 3 year old who both received a sum of money last year to the sum of around €10,000... Not through inheritance but rather through trust. No one can really tell me of their tax liabilities. My accountant has gone off to look into it. Citizens advice could offer no information as the chrildren are under 16 and not disabled. Do they need to file an income tax return with revenue annually. I think it bizarre that my children would be on revenues radar at such a young age. Also I believe there would be no allowances or credits in which to claim tax back or reduce the payable amount.

What's the procedure in cases like this?

Penguin3029

First thing to consider is why they received it.

It came from a trust, but why did that trust exist? Was it a gift? A compensation payment?

Peregrinus

If you receive a gift or inheritance (and most disbursements out of a trust will be gifts or inheritances) there's no liability to income tax on that, but there is a potential liability to Capital Acquisitions Tax. The amount of the liability depends on who the donor is (they "look through" the trust to determine who the ultimate donor is) and on the recipient's relationship to the donor. (Parent and child? Grandparent and grandchild? Etc.) There isn't enough information in your question to determine the relationship, but it doesn't matter. Even if the donor and the recipient are unrelated, you can get up to €16,250 worth of lifetime gifts from unrelated people and still have a nil liability. So assuming your kids have not received any previous gifts or inheritances they should have a nil liability to CAT on this occasion. (But note that the €16,250 limit is cumulative, for all gifts received; if they get more gifts later on, they have to take account of the fact that they have already used €10,000 of their lifetime allowance).

Right. The next question is, what are they going to do with the €10,000? I'm guessing that you are going to squirrel it away in some savings account or investment product for them. This may generate income (interest, dividends) each year for them and, depending on the nature of the investment, it may generate a capital gain when sold (which, presumably, will be when they are adults). Each of your kids has a personal allowance, and the income generated each year on an investment of €10,000 is very unlikely to exceed that allowance, so they will have a nil liablity to income tax. Of course, if you put the money into a deposit account the income will take the form of DIRT, deducted at source, and your children will be unable to reclaim that. (This may affect your decision about where to invest the money until the children are of age.)

if an investment is disposed of when they are still minors, and there is a capital gain arising on disposal, that gain is subject to CGT exactly as if your kids were adults.