Not the great train robbery or Brinks Mat but is it legal

Robert_Sterling

As I understand it if parents give money to their child then the interest on that money is free of tax provided it does not exceed £100 per parent in each financial year.
Any money given by a person other than the parents can earn interest tax free ( as long as it is within the nil rate band for tax i.e. In total the interest is less than approximately £5000 in any financial year. )

Usually the persons involved are grandparents or god parents or the atheist equivelant of godparents.

What if ?

Sibling A gave a £100 per month to a child of sibling B and sibling B gave £100 a month to a child of sibling A.

I have numerous variation on this theme including one involving
Siblings A, B and C who have 2,4 and 2 children respectively.
Call the children of A a1 and a2
Call the children of B b1, b2, b3 and b4
Call the Children of C c1 and c2

Then A gives to b1, b2, c1 and c2
B gives to a1, a2, c1 and c2
C gives to a1, a2, b3 and b4

My question is this

Would this be tax avoidance?
or
Would this be tax evasion?

Cypher

Martin has written an article on the site about Childrens Savings which goes into the Grandparents, Aunty, Uncles etc gifting to a child.

Use your child - best child savings account

There is also a follow up forum article discussing it.


personally I think if the savings are two way, ie you give to your brothers kids and he gives to yours that could be shown as Tax avoidance. Whether they would spot it and come after you is another matter. But if the money came from grandparents where there was no two way exchange, then its just looks like nice grandparents looking equally after all their grand children.

The article above does mention Inheritance Tax which needs to be looked at, this would accure if the donor died within seven years of making the gift.

ReportInvestor

Why can a parent give £1,200pa tax free to a 4 year old but not to their 6 year old sibling? This is a policy nonsense

The government needs to allow a Child Trust Fund [without dishing out £250 or £500 vouchers given to the 0-5s] for children 6-18 so that parents can save up to £1,200 into a tax free account for their children in preparation for university.

It's not rocket science and it's unfortunate that otherwise law abiding citizens might think of stooping to the questionable tactics outlined by the OP .

It would also have the effect of revitalising the overall children's savings market that is in the doldrums as providers put more effort into CTFs for under 6s.

Now the government has significantly compounded this blantant "age discrimination" between 4 & 6 year olds by allowing money saved in a CTF fund to go into ISAs. We are potentially talking about £50,000 here.

Who is advising the government on the wisdom and fairness of this?

The cynic in me says it is not a policy advisor but a spin doctor who has spotted a good "saver friendly line" for the budget that won't cost the government any money for the next 13 years :rolleyes: but which New Labour can use to ram down David Cameron's throat if he questions Gordon's credentials on long term saving.

Robert_Sterling

Cypher wrote:

personally I think if the savings are two way, ie you give to your brothers kids and he gives to yours that could be shown as Tax avoidance.

Tax avoidance is 100% legal ( that is what the vast IHT avoidance industry is all about for example).

Robert_Sterling

ReportInvestor wrote:

Who is advising the government on the wisdom and fairness of this?

Fairness demands that we treat people who are in the same situation in the same manner.
It does not require us to treat people who are not in the same situation in the same manner.

So for some purposes we have cut off points.
e.g. 1 If you were 65 before a certain day you get a married persons Income Tax Allowance if born one day to late you do not.
e.g. 2 If you were born recently you get £250 in a CTF but if born one day too soon you do not.

If your children are of different ages do you give them all the same amount of pocket money as each other?

....................................................................................................
Is the original scheme I proposed tax evasion or tax avoidance.
I do not think it involves any "stooping".

Robert_Sterling

prudryden wrote:

Could it not be considered as a "sham" and, therefore, ... ........?

Why should it be.
If the law only excludes parents from being the giver?

ReportInvestor

Robert_Sterling wrote:

Fairness demands that we treat people who are in the same situation in the same manner.
It does not require us to treat people who are not in the same situation in the same manner.

Both 4 and 6 year old's are heading for the same great university debt hole in the ground and have parents who are concerned about this.

Robert_Sterling wrote:

If your children are of different ages do you give them all the same amount of pocket money as each other?

The older one's usually get more.

In this case they get less, even though there is less time for their parents to save towards the university fees that were not in any party's manifesto when they were born.

Of course people will be treated differently. But there should be a logic behind it to justify the disparity. And there is no logic here.

Xbigman

Robert_Sterling wrote:

Why should it be.
If the law only excludes parents from being the giver?

As the parents of a minor the government realises you still effectively control any money you give them. Contrary to popular opinion the government is not completely stupid (just mostly stupid :rotfl: ).
Regards



X

Robert_Sterling

Quite so.
Do you then deduce that my suggested scheme where siblings are the donors is avoidance rather than evasion.

gt94sss2

Robert_Sterling wrote:

Do you then deduce that my suggested scheme where siblings are the donors is avoidance rather than evasion.

I would be willing to have a (small) bet that the Inland Revenue would term it tax evasion (i.e. breaking the rules) not avoidance (if they noticed)

Regards
Sunil

Hereward

Robert_Sterling wrote:

Quite so.
Do you then deduce that my suggested scheme where siblings are the donors is avoidance rather than evasion.

After re-reading your OP it will depend on where Sibling A and B get their money from to give to each other: if you are supplying the money then HMRC will probably deem it as evasion as the sibling's have no money of their own. On the other hand if they money is coming from their own savings then the HMRC will be probably deem it ok, but in this scenario neither sibling’s savings increase so the transactions are fairly pointless.