Child's inheritance and tax implications

Cov01

Hello,

6 years ago my Grandmother passed away and left myself and my then 1 year old son a lump sum each.

I invested the money in a car and am now selling it (at a profit).

I have read that a child will have different tax bands depending on whether the money is from a parent or from someone else.

After 6 years can I prove the money was from a great grandparent and not from me - and how would I do this? And does it even matter?


Thanks

Keep_pedalling

You should be holding your child's inheritance in trust, not in a joint investment of any kind.

The profit on the car will fall under capital gains, and although your son has the same allowance as you, you presumable purchased the car in your name alone so I don't see how you can use that allowance.

What sort of sums are we talking about here?

xylophone

Do you mean that you used your child's money (which should have been held in bare trust for him) to buy a car?

Cov01

There was no mention of a trust at the time? The will did not stipulate this? The money was transferred straight to me.

In fact, there was confusion over the will and at first none of the great grand children were being given any money. Then it was rectified after the monies had been paid originally.

The car was an investment which had made a greater return than a savings account would have for him. I thought this was the right thing to do given interest rates.

Keep_pedalling

Cov01 wrote: »

There was no mention of a trust at the time? The will did not stipulate this? The money was transferred straight to me.

In fact, there was confusion over the will and at first none of the great grand children were being given any money. Then it was rectified after the monies had been paid originally.

The car was an investment which had made a greater return than a savings account would have for him. I thought this was the right thing to do given interest rates.

The will does not need to do so, minors cannot receive their inheritance until they reach 18, however the mistake has been made so the thing now it to put things back where they should be. What you do with your son's inheritance now really depends on how much we are talking about, and the current age of your son.

As for the tax on your profit, I have just realised that CGT does not apply to cars, which generally lose value, so people would be able to offset gains with the depreciation of the family car, which the government is not too keen on.

The thing to do now that you have liquidated the asset is to put your som's share in a suitable place, so how much is his inheritance now, and how old is he?

Cov01

Thank you - I appreciate your response.


The solicitor and the executors both mis interpreted the will and so it was divided incorrectly and only afterwards corrected.

My son is now 7 and the amount is £7000.

xylophone

Do you mean that the will was varied in order for the great grandchildren to receive bequests?

Or that the executor misunderstood the will and failed to distribute the bequests correctly?


https://www.gov.uk/savings-for-children - so yes, the source of funds for a child does matter.



How much capital and profit do you have to return to your son?

xylophone

Does your child have a Child Trust Fund?

Cov01

Hello - the will must have been ambiguous and so even the solicitor who had written the will was not sure on whether great grand children were to inherit. The decision was eventually reached that they were to receive.

Yes - he does have a CTF.

Keep_pedalling

Cov01 wrote: »

Thank you - I appreciate your response.


The solicitor and the executors both mis interpreted the will and so it was divided incorrectly and only afterwards corrected.

My son is now 7 and the amount is £7000.

With 11 years to run and for that relatively small sum I would open a S&S JISA for him, put in £4128 now and the rest after 5th April.

The lowest cost JISA I have found is with Vanguard, which charges 0.15% You then just need to choose the fund / funds to put the money into.Vanguard Lifestrategy 80 perhaps

This puts the inheritance into his name, removes all tax issues, and locks it away until he is 18.

Cov01 wrote: »

Yes - he does have a CTF.

In that case if you want to go down the JISA route that would need to be transferred as you cant have both.

xylophone

Yes - he does have a CTF.

It would be possible to make the full subscription to the CTF for his "CTF year" (birthday to birthday), transfer the CTF to JISA and then make the full subscription for the JISA year.


https://www.skintedmintedmum.co.uk/minted-blog/how-to-transfer-a-child-trust-fund-ctf-to-jisa-with-a-double-scoop-of-tax-allowance.html

This would enable you to fit the whole £7000 into your child's account in this tax year.

You might have enough "room" to add more in the current tax year (if you wished).

You could continue to add to the account in future years.

The "£100 rule" does not apply to CTF/JISA.

The monies would belong to your son absolutely and he would gain access at the age of 18 (as would have been his right under a "bare trust").