Children's savings account funded by Grandparent

Pleco2014

Hi, I've been searching through the various savings threads to see if I could find an answer to my query but have bitten the bullet and decided to write a post - sorry, I have "newbie nerves".
My father is in the process of gifting money to myself and my brother in the hope of offsetting future inheritance tax. With some of the money I would like to open some children's saving accounts for my daughter (she is 2 years old and currently has a Halifax JISA at its maximum allowance for this year but as yet no other savings account). I believe that if I open any savings accounts for my child with the money that he has gifted to me, any interest earned over £100 will be subject to tax at my rate (lower tax band), therefore, I'm wondering if my father was to gift the money to my daughter for me to open the accounts would this then make any interest earned tax free - as it would not be deemed as a gift from her parent as long as I could prove that the money was not mine originally? or would my father have to open the accounts?


I hope this makes sense...

Your_Hero

Pleco2014 wrote: »

Hi, I've been searching through the various savings threads to see if I could find an answer to my query but have bitten the bullet and decided to write a post - sorry, I have "newbie nerves".
My father is in the process of gifting money to myself and my brother in the hope of offsetting future inheritance tax. With some of the money I would like to open some children's saving accounts for my daughter (she is 2 years old and currently has a Halifax JISA at its maximum allowance for this year but as yet no other savings account). I believe that if I open any savings accounts for my child with the money that he has gifted to me, any interest earned over £100 will be subject to tax at my rate (lower tax band), therefore, I'm wondering if my father was to gift the money to my daughter for me to open the accounts would this then make any interest earned tax free - as it would not be deemed as a gift from her parent as long as I could prove that the money was not mine originally? or would my father have to open the accounts?


I hope this makes sense...

I believe that would be fine as it's the source of the deposit that's the important factor.

The fact that your father opens the account would make no difference as he would simply be the nominee for it (i.e. a trustee for a bare trust). The income of the children (if exceeded £100 p.a. per parent) would still be taxed under the parent's income if it was your money originally.

Pleco2014

Thank you Your Hero, I was hoping that was the case. To prove that the money had come from my father rather than me, would it be better if he deposited the money in the various accounts himself by cheque once I had opened them with a nominal sum, i.e £1.00? Would I then have to submit an R85 form for each account opened? Sorry if these are daft questions!

jimjames

If this is long term money then you'd probably be better off looking at investing it rather than putting in a savings account.

Biggles

jimjames wrote: »

If this is long term money then you'd probably be better off looking at investing it rather than putting in a savings account.

Absolutely right. I have gone for Children's Investment Plans as bare trusts with F&C, though no doubt there are several companies with like products.
http://www.fandc.com/uk/private-investors/savings-plans/savings-plans-range/childrens-investment-plan/

And yes, to keep the record straight for the future, it would be far safer for your father to make the payments direct. You don't want HMRC arguing, years down the line, that the money was gifted to you and you chose to give it to the child.

Pleco2014

Thank you both very much for your advice. It is long term investment which I would like to hand over to her once she turns eighteen. I also have to look at investing the money that my father is gifting to me, I've been avidly reading all of the savings posts, there is so much to digest and I don't want to rush into anything and regret it later .....

xylophone

I would suggest that the money is gifted direct to your daughter - you and your father could be joint trustees of a bare trust.

If this is to be for the long term, an investment trust might well suit.

http://www.ftadviser.com/2012/06/20/ifa-industry/your-business/held-in-trust-for-grandchildren-IkEUDNgaQMGRZFmW9SQwdM/article.html

Foe examples http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/

http://bailliegifford.com/documentgateway.aspx?_id=3A39B056-DE6E-474E-870C-3DB1B9BB88F3&disclaimer=ok

The above explains the difference between designation and bare trust - you will need the bare trust option.

You could also open an account in bare trust with the likes of Hargreaves Lansdown and make your own choices. http://www.hl.co.uk/faqs/contact-us/can-i-invest-on-behalf-of-a-child

If the investments you choose pay interest rather than dividends, then any overpaid tax can be reclaimed on behalf of the beneficiary of the Trust.

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/individuals/savings-income.htm

See also http://www.hmrc.gov.uk/taxon/ten-percent.htm for this tax year and https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf
for subsequent years.

Pleco2014

Thank you both, you have given myself and my father some food for thought, investing does look the way forward....