Managing another adult's tax-free savings

aroominyork

Last year I inherited £50,000 from my mother which I am keeping as a deposit on the first property my son (24 years old) buys. I would rather control this money myself rather than give it to him now. However he is a postgrad student and earns under the tax threshold so he can earn interest tax-free (on an R85) while I am a higher rate taxpayer. How should I manage this? I can open an online savings account in his name, control the login myself and get him to sign an R85; but if the linked current account is in my name would the taxman be suspicious that I was using him as a front to avoid tax? Thanks for any help and ideas.

Annisele

To be blunt - you either give him the money or you don't.

If you set up an online account in his name, he'd almost certainly have to promise the provider he wouldn't share his logins with anyone. He could give the provider authority to deal with you - but he could withdraw that authority (and the money) at any time.

You could set up a bare trust with him as the beneficiary - but he'd be allowed to bring the trust to an end whenever he wanted.

You could try to set up some other kind of trust, but I can't think of any that would allow you to retain complete control *and* for the money to be taxed as his.

notbritishgas

Could you set up a joint account with him, then half the interest could be paid tax free.
You could set it up requiring both signatures needed for any withdrawal.
Don't know how that would work on an online account though.

Masomnia

Has your son given you any reason not to trust him with the money?

I don't see how you can have it both ways. Either the money is his and taxed as such or it is yours and taxed as such.

grizzly1911

aroominyork wrote: »

Last year I inherited £50,000 from my mother which I am keeping as a deposit on the first property my son (24 years old) buys. I would rather control this money myself rather than give it to him now. However he is a postgrad student and earns under the tax threshold so he can earn interest tax-free (on an R85) while I am a higher rate taxpayer. How should I manage this? I can open an online savings account in his name, control the login myself and get him to sign an R85; but if the linked current account is in my name would the taxman be suspicious that I was using him as a front to avoid tax? Thanks for any help and ideas.

Depends on your relationship IMO.

Why couldn't the link account be opened up for him too?

Yes he "shouldn't provide you" with log-in, passwords etc. but if you aren't going to defraud him I don't know what grounds he would have against the bank or you. The bank would simply refuse to pay out any claim in any event.

Yes he could change the log in and password and run off with the money but if you are regularly "policing" the account at least you will know.

If you don't trust each other then you are back to the previous posts.

gadgetmind

Annisele wrote: »

To be blunt - you either give him the money or you don't.

Agreed 100%. I set up a bare trust for my daughter, and when she turned 18, moved everything from designated accounts into her sole name as I was legally obliged to do.

I still manage most of it for her, particularly the stocks and shares elements, but I've made it clear that it's all hers. While I may suggest and then implement various trades, she knows that she has the final say and can take full control at any time.

She's an adult and I treat her like one. This might mean that she makes the odd mistake, but that's life and is how you learn.

I've said that I'm happy to "teach her the ropes" regards saving and investing (and have explained dividends, interest, tax wrappers and capital gains allowances) but TBH she's got far too much else to be cramming into her head right now.

kidmugsy

If your son is game what is the difficulty in opening an O/L savings account for him and then his letting you change the password so that you have access to the capital and he doesn't. The interest could still be paid out to his current account. Mind you, you would then have officially gifted the capital to him, so that if you withdrew any of it you would be guilty of theft.

Whether such a scheme would be wise I don't know.

xylophone

The money is yours so remember that if you gift money to your son you might need to be aware of IHT implications.
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

With regard to your son's tax position, the following might be of interest.

http://www.hmrc.gov.uk/taxon/bank.htm and http://www.hmrc.gov.uk/taxon/worked-examples.htm concerning the 10% rate.

Remember that if your son's total income (including savings income) is over his tax allowance, he cannot complete R85 even if eligible for the 10% rate - he would have to reclaim on R40.

Whether you make the gift now or not depends on how much you trust your son not to use the money irresponsibly.

You might also consider that if even you made him the gift at the time of house purchase, circumstances could later arise where irresponsible behaviour could cause him to lose the house...... it is all if, and, and but don't you think?

dzug1

aroominyork wrote: »

? I can open an online savings account in his name,.

You can't - or you really shouldn't. You'd be making false statements all over the place if you did

He has to open it himself

I'd be very wary of any bank that allowed otherwise.

barak

Annisele wrote: »

.....You could try to set up some other kind of trust, but I can't think of any that would allow you to retain complete control *and* for the money to be taxed as his.

Not complete control, but OP could keep control of the capital if prepared to allow the son to receive the potentially "tax free" interest.