Tax avoidance on a 5 figure sum ?

luvpump

Just curious, if someone had say a four or five figure sum in a savings account is there a way to "gift" it to someone i.e a relative who does not pay tax on there savings interest, then at some point in the future "gift" the whole lot back again ?

Lokolo

Yes it can be done but the person the money is sent to is not obliged to send it back. They can keep it. Spend it. Do what they want with it. As you gave it to them as a gift.

luvpump

Lokolo wrote: »

Yes it can be done but the person the money is sent to is not obliged to send it back. They can keep it. Spend it. Do what they want with it. As you gave it to them as a gift.

Thanks, to be quite frank i am thinking of doing this with an existing account with my dad & simply splitting the extra interest between us, makes sence if it can be done i guess ?

G_M

Lokolo wrote: »

Yes it can be done but the person the money is sent to is not obliged to send it back. They can keep it. Spend it. Do what they want with it. As you gave it to them as a gift.

To protect yourself against the possibility of their not gifting it back later, draw up a contract which you both sign, to say the recipient will return it in (X) years.

To protect yourself against a tax demand, send a copy of the contract to HMRC.

dzug1

There's no contract there - no consideration, therefore not enforceable as a contract.

Who is getting the interest? The recipient of the gift presumably - if he 'gives' it back to you then that brings it straight back into the realms of tax. So you have to give away both the capital and the interest to stay out of tax.

And if the recipient of the gift is not your spouse then there are (potentially) IHT implications.

And I suspect sending a copy of the so-called 'contract' to HMRC might have the opposite effect of that desired.

D1zzy

luvpump wrote: »

Thanks, to be quite frank i am thinking of doing this with an existing account with my dad & simply splitting the extra interest between us, makes sence if it can be done i guess ?

Are you sure the Interest will not push him into being a tax payer?
If so, he will potentially be liable for tax on the full interest even though he only gets half.
Split the tax?
It might still be worth it if it keeps you out of the higher rate tax bracket

Stavros_3

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D1zzy

Stavros wrote: »

HMCR watch this site, they have the most amazing I.T technology too, they make the t.v programme Spooks look really antique when it comes to tracing people on the internet, remember, every computer leaves a trace lol

He's not proposing anything illegal is he?

ManAtHome

Would stuff any benefit claims - dunno how old dad is, but possibly pension credit if a non-taxpayer?

Aegis

G_M wrote: »

To protect yourself against the possibility of their not gifting it back later, draw up a contract which you both sign, to say the recipient will return it in (X) years.

To protect yourself against a tax demand, send a copy of the contract to HMRC.

This would not count as a gift at all, so it would instead be tax evasion. If someone wants to do this, they have to gift the money without reservation, so any form of agreement drawn up to return the money after a certain time would invalidate the point of gifting to someone else to begin with.

This should only really be considered a good idea between spouses, where such gifts can be made at any time with any asset with no liability to tax. Anyone else and you have a very real risk that you will either not get the money back or will be guilty of tax evasion (whether you get caught or not).

opinions4u

luvpump wrote: »

Thanks, to be quite frank i am thinking of doing this with an existing account with my dad & simply splitting the extra interest between us, makes sence if it can be done i guess ?

1. Yes you can do it, it's perfectly legal. You are allowed to give your own money to whoever you choose. They can give you money back (e.g. interest) whenever they like too.

2. If your Dad goes in to residential care, the funds will, rightly, be considered to be his assets and could be used to pay for his care.

3. It could totally undermine Dad's right to benefits.

4. If he dies the funds form part of his estate and will be distributed in accordance with his will or the laws of intestacy. If there's any IHT liability on the estate these funds could be taxed at 40%.

It's a bad idea to save a relatively small sum of tax. Maximise your ISA allowances over the coming years and, perhaps, see an IFA to review pension planning and the tax free benefits that provides.

Aegis wrote: »

This would not count as a gift at all, so it would instead be tax evasion. If someone wants to do this, they have to gift the money without reservation, so any form of agreement drawn up to return the money after a certain time would invalidate the point of gifting to someone else to begin with.

This should only really be considered a good idea between spouses, where such gifts can be made at any time with any asset with no liability to tax. Anyone else and you have a very real risk that you will either not get the money back or will be guilty of tax evasion (whether you get caught or not).

It's tax avoidance (legal) not tax evasion (criminal) if the transfer of funds is made unconditionally.

But the system has enough ways of screwing the recipient of such a lump sum to make it not worthwhile. Your point re spouses is most valid.