Davy Minor Trusts

The transfer of wealth to the next generation is often a complex process and can be overwhelming. There is no off-the-shelf solution, and what may be optimal for one family, can look very different for another.  

The principal tax to consider when making provision for the next generation is Capital Acquisitions Tax (CAT), which operates on a cumulative basis. This means that all gifts or inheritance received since 5th December 1991, within the same class threshold, are added together and count towards the available threshold. As of the 2nd October 2024, the thresholds are: 

• Children can receive a total of €400,000 tax free from parents.   
• Family members can receive a total of €40,000 tax free (i.e. brother, sister, niece, nephew, grandchild etc).
• Gifts/inheritances to any other individuals are tax free up to €20,000.

CAT will be payable at a rate of 33% on the value of inheritances or gifts which exceed the threshold. 

In addition to the above, any individual can receive an annual gift of €3,000, tax free, from any number of people. This means, for example, that each parent, and each grandparent, can make an annual gift of €3,000 to any child.  

Using the small gift exemption in this way means that the tax-free thresholds are preserved and both parents can invest, and tax-efficiently, migrate a significant amount of wealth to the next generation, as illustrated below.
 

Davy Minor Accounts

With Davy, an investment account for a child who is under 18 is structured so that the parents hold the assets on behalf of the child and as nominees, make the investment decisions whilst the child is under 18. The beneficiary owns the income and capital of the trust.  

From a CAT perspective, this is efficient as the growth in value of the funds is in the hands of the child.    

Davy Minor Accounts and tax 

The Davy Minor Account is look-through for tax purposes i.e. the child is assessed for tax. 

If invested in direct investments, the child will be liable to Capital Gains Tax (CGT) if gains arise on a disposal of those investments.

If the investments give rise to income tax, the position can be complicated as tax rules attribute the income to the person who provided the funds into the account i.e. typically the parents.       

If the account is invested in investments subject to fund exit tax, and where the tax is deducted at source, the tax implications are relatively straightforward.

Filing requirement

The parents will need to register the trust with the Central Register Beneficial Ownership of Trusts (CRBOT) within 6 months of the trust being established. 

Lack of Control 

While The Davy Minor Account is beneficial for tax efficiency, the principal disadvantage is that when the child reaches 18, the account comes to an end and the child will have access to the funds, without restriction. This often poses a problem, as many young adults are not sufficiently mature at this age to manage a significant amount of capital. 

For this reason, it is often appropriate to set up a partnership, alongside the Davy Minor Account, to ensure that the child cannot access the underlying funds when they reach 18. 

Next steps

The transfer of wealth to the next generation is an significant matter and knowing where to begin can be challenging. The use of a Davy minor account is often a great first step in this process.

At Davy, we work with you through the financial planning process while making these important decisions and can help determine if this suitable for you and your family.  

If you’re an existing Davy client, please contact your adviser to find out more. If you’re new to Davy, why not book a consultation today?