Trustee Account for 18 year old?

xylophone

If you give the money to your daughters after the age of 18 and they invest it and earn interest of any amount it is all taxed as their income.
If they are under 18 and earn interest on money gifted by parents the £100 rule applies.
The IHT rules apply on gifts at whatever age but see exempt maintenance payments.http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/InheritanceTaxEstatesAndTrusts/InheritanceTaxwhenpassingonmoneyorproperty/DG_179336
You can also make exempt maintenance payments to:
your husband, wife or civil partner
your ex-spouse or former civil partner
relatives who are dependent on you because of old age or infirmity
your children, including adopted children and step-children, who are under 18 or in full-time education

buffman

xylophone wrote: »

If you give the money to your daughters after the age of 18 and they invest it and earn interest of any amount it is all taxed as their income.
If they are under 18 and earn interest on money gifted by parents the £100 rule applies.
The IHT rules apply on gifts at whatever age but see exempt maintenance payments.

So if I invest £10k for my 18 year old daughter (who will be going to university) and who will not have any other income, she will be able to register to have her interest paid gross?

Would the £10k be counted as a maintenance payment (even though she will have student loans) or will £6k (this year and last years exempt allowance) be exempt from inheritance tax and the 7 year rule applies to the balance?

xylophone

Your 18 year old has a single person's allowance (http://www.hmrc.gov.uk/rates/it.htm)-see also http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm
If all her gross taxable income from all sources is less than this then she can complete R85 (see links).http://www.hmrc.gov.uk/helpsheets/r85-helpsheet.pdf

She can also use her ISA allowance(tax-free interest).

With regard to maintenance payments, I should think that HMRC would have regard to what they'd consider reasonable. I think I'd be inclined to write your daughter a letter (enclosing a cheque for £10000) saying that this represents your parental contribution to her maintenance costs for her three years at Anytown University. Keep a copy with your financial papers.

As far as I can see this would still leave you and your wife your gift allowances for IHT purposes? Always keep records of gifts with your financial papers. If you need definitive guidance check with your tax office.