Grandfather paying school fees via our account

kladoink

Hi, just wondered if anyone could offer their thoughts on our situation.

My FIL has a trust set up to pay for his grandchildrens' educations. The trust is in Africa, where he is resident. He is currently paying the money into my husband's current account and we pay school fees from there. It's just dawned on me that this approach could lead to us being liable to pay tax on the money at some point.

We have approached the school re a fees in advance scheme and they do not offer this. Even if they did, this would not solve the problem entirely as the amount he pays in covers clubs, uniform, supplies, trips etc which would not usually be covered by the school bill.

Would it be better for him to pay the money into savings accounts in the children's names (I am trustee for these accounts)? Or would we be still be liable?

Are there any other approaches we could take to try to ensure we are not landed with a huge bill that we couldn't afford? I'm really worried about this now.

Many thanks

xylophone

Or would we be still be liable?

http://www.hmrc.gov.uk/trusts/types/non-resident.htm may be worth a look?

madgagoo

Really depends on how the money comes out of the trust.

If you are the beneficiary, in the trust deed, then I would think the money should be treated as income and taxed on you.

If FIL is the beneficiary & then decides to give money to you after he has received it, then I don't think it would be taxable on you, as it would just be a gift. This option has potential for IHT issues, if FIL were to pass away within seven years of the gifts.

That said, once things involve a foreign trust matters can get very complicated and everything I've said above could be wholly incorrect! In short, I'd recommend getting professional advice!

SeniorSam

Cant see why the trust cannot pay the fees direct, but if not then another approach may be possible.

As I understand it, most trusts can make loans or gifts as the trustees see fit. The money paid to your husband can be by way of gift, in which case not taxable, or if it is by loan, then it could be a debt against your husbands estate at a later date. However, the Trustees may arrange the loan based on agreement to repay at a date they may see fit, but may never call in the debt, as it could be at their discretion.

You would need to check the conditions/wording of the actual trust, but these options should be possible with agreement of all trustees. If the Trust dowes not allow for this, then provided the Settlor is still alive, the Trustees could all agree to some changes in the wording. Seek legal advice if so.

Hope this helps.

Sam

kladoink

Ok thank you. I've read through the information on the link provided but just don't understand it all enough.

In terms of professional advice, would it be an accountant? A financial adviser? A tax or trust expert? I'm just going to be googling for someone in my area and am not sure what to look for.

SeniorSam

Best if you, or your Father in law, if he set this up, can consult with the person or company who actually set up the Trust. The wording in the Trust document is what yopu need to be clear on.

It is rare that an accountant or financial adviser will have sufficient knowledge unless they are regularly dealing with Trusts. Some solicitors have the qualification to advise on Trusts, but they would need to have sight of the Trust document before they could advise the trustees, so no good speaking to anyone unless you have that to hand.

Sam

xylophone

It would appear that the Trust/Trustee has non-resident status.

You need an adviser with the expertise to advise on the treatment of income from non-resident trusts.

http://www.sgllp.co.uk/client-memoranda/non-resident.htm

http://www.rkgconsulting.com/company-formations/use-uk-companies-for-trading-investment-or-tier-2-work-visas/trust-corporate-services-providers/trusts-and-trustee-tax-responsibilities/non-resident-trusts/

Googling brought up the above- might be a start?

CLAPTON

it's not clear here that the trust has any relevance, as the FIL and the trust are not resident here in the UK


all that is happening is a sum of money is being sent by FIL to the poster who uses it to pay school fees.

kladoink

CLAPTON wrote: »

it's not clear here that the trust has any relevance, as the FIL and the trust are not resident here in the UK


all that is happening is a sum of money is being sent by FIL to the poster who uses it to pay school fees.

Yes, FIL pays money into my husbands account. We pay fees from that account then sweep the remainder into a jar within our joint account so I can pay for things like sports camps, uniform, trips, extra books etc on an ad hoc basis.

From what I've read, I think we are liable for tax so need to work out another way to do this if possible. The amount paid is around £1500 per month so it's not inconsiderable.

Mojisola

kladoink wrote: »

From what I've read, I think we are liable for tax so need to work out another way to do this if possible. The amount paid is around £1500 per month so it's not inconsiderable.

It's a gift, not income, so why would you have to pay tax on it?

CLAPTON

kladoink wrote: »

Yes, FIL pays money into my husbands account. We pay fees from that account then sweep the remainder into a jar within our joint account so I can pay for things like sports camps, uniform, trips, extra books etc on an ad hoc basis.

From what I've read, I think we are liable for tax so need to work out another way to do this if possible. The amount paid is around £1500 per month so it's not inconsiderable.

the money is a gift from abroad by FIL: where he gets it doesn't seem to me of any relevance (unless illegal)




so I see no tax liability, as gifts are tax free in the UK
what you do with it seems to be your business


the tax authorities where FIL may of course have a different view but that wouldn't be a concern of HMRC