Passing savings to a non-taxpayer

bobsmith85

Hello all, quick question...

I am a standard UK taxpayer (20% or whatever it is these days!) and I am looking into various places to invest my savings. The thought did cross my mind that maybe I could pass my savings onto a family member who is a tax-dodging student to invest for me, not pay tax on the interest, and then get the sum back plus more interest at the end of the term. Now I imagine there are tax rules/laws against this, but I can't seem to find any definitive answer anywhere. I've heard things about inheritance tax 7 year rules, which touch wood shouldnt come into affect, but that aside I've seen nothing to suggest I can't do this. Is there anything stopping me doing this? (or is it just natural bewilderment and paranoia at the UK tax system!)

P.S. I apolgise if this is either blatantly obvious or has been answered before, but its not an easy subject to search for.

Bogof_Babe

What sort of amount are you talking about? Presumably you are using your ISA allowance each year?

The only person you can freely transfer money to is your spouse. Any other relative would fall into the "allowed gifts" category, i.e. you can give a gift of £3,000 per year, but anything over that would result in tax being due from the recipient. You can only give one £3,000 (or say 3 x £1,000) each tax year.

Your plan is doubly risky as there is no guarantee that your "family member" would repay you the money. Once you have given it, it is legally theirs.

bobsmith85

Thanks for your response.

I have exhausted the ISA element for the year and the amount is over £3,000...unfortunately it seems!

The family member risk element I know about, I just didn't know if it was a legit idea. To be honest I did think there were would be limits to this sort of thing otherwise it would be common practise.

Just out of interest, and sorry for my ignorance in not knowing this, but how would the 'authorities' know about 'gifts' over £3k taking place? Surely someone can send cheques or bank transfers to people over this amount, do banks investigate all transactions above £3k or something? I must say if this sort of thing is left to human decency in declaring these type of transactions then it should probably be more widely advertised.

Bogof_Babe

In practice I doubt they would find out about it, if only abused on the odd occasion, so it's a gamble that you could probably fairly successfully risk.

There is an element of trust in self certificated tax returns, as I imagine only a random sample are chosen for thorough analysis. Again it's a gamble though.

I have nothing to do with HMRC so these are just my uninformed assumptions. Please don't do anything on the basis of these posts!

bobsmith85

Okay well after reading your post I've been given a bit more direction as to where to look. It seems the £3k limit applies to giving 'assets' as gifts; of which sterling cash seems to be exempt. It's a tricky subject and I think I might have to get professional advice to be certain about the limitations.

Thanks for your advice though, and I'll be sure not to attempt dodging the tax-man on the basis of your posts!

RayWolfe

I think you will find that such action is Tax Evasion which is illegal.
On the other hand if you wish to give money to a family member, they will own the money and you cannot, in law, retrieve it from them. There is a return that savings institutions have to give HMR&C on the amount of interest earned on accounts.
Don't take Bogof_Babe's advice that it is a gamble you could risk. Illegal, immoral and very dangerous if you wish to get your money back.
As for gifts, you can give as much as you want in cash or in kind without tax implications. The only effect could be on Inheritance Tax

Bogof_Babe

RayWolfe wrote: »

I think you will find that such action is Tax Evasion which is illegal.
On the other hand if you wish to give money to a family member, they will own the money and you cannot, in law, retrieve it from them. There is a return that savings institutions have to give HMR&C on the amount of interest earned on accounts.
Don't take Bogof_Babe's advice that it is a gamble you could risk. Illegal, immoral and very dangerous if you wish to get your money back.
As for gifts, you can give as much as you want in cash or in kind without tax implications. The only effect could be on Inheritance Tax

I'd just like to point out that it wasn't "advice", and the OP had a good point about how would it be found out. If, as you say, it is perfectly legal to give as much as you want as a gift (I'm still not convinced on that myself), there would be no illegality anyway would there? I'm not sure what "action" you are referring to in saying that "such action is Tax Evasion which is illegal". You've just told the OP that he can gift as much cash as he wants to his relative, and if the relative chooses to use his tax free allowance to increase the amount then gift it all back, where's the crime?

bobsmith85

Therein lies my problem, I can see how both sides of this could be right.

I believe I have been fairly conscientious in reseraching this matter first, but I find it hard to believe that everyone either knows about this, or would seek advice on it. If this is tax evasion, which I can see how it could be if that is the case, then no wonder the UK has problems with tax evasion when no-one knows (generally speaking) what they can and cannot do!

RayWolfe

I assure you Bo_B it is perfectly legal to give anyone as much as you want with no tax implication apart from IHT. There may be other implications regarding deprivation of assets if you need help for care, etc. If, however you are passing money about (except spouses) to evade tax (I give you money, you invest it where I tell you, you don't pay tax, you give me the money back) is illegal. You are not giving the money, you are conspiring to evade tax on savings. If your final proposition were the case, (think about it) would any of us be paying any tax on any savings? Would the richest in the land have any savings in their own name.
As for knowledge of any law, Bob, we all have that problem but as we should all know, ignorance of the law has never been an excuse. If you really want to research it further, phone up your tax office and ask them. If that sounds too dangerous, write to a money page of a respected newspaper and ask there. However, to save you any of that bother, just think about it. It is entirely legal to give money away; but you were not thinking of GIVING it away, you were thinking of saving some tax. That's when it becomes a whole other case.

sloughflint

Bogof_Babe wrote: »

The only person you can freely transfer money to is your spouse. Any other relative would fall into the "allowed gifts" category, i.e. you can give a gift of £3,000 per year, but anything over that would result in tax being due from the recipient. You can only give one £3,000 (or say 3 x £1,000) each tax year.

The way this reads is wrong. You are allowed to gift as much as you like.Also any tax due is not by the recipient.

More info here:
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Bogof_Babe

So you can give money away so long as it's on a one way trip then?

Hypothetically, if I give you £10K and you invest it, then in a couple of years you say sell a car for £10.5K and give me that money, it could not be proved that it was the same original money, could it?

I think the tax inspectors would have a hard job to prove illegal intentions, even if they suspected dubious motives.

It is a minefield. Good luck sorting it out Bob!