Sending money to Parents to save for me - taxable?

Jono987

Hi everyone, i currently have a Direct Debit set up for quite a large amount to my mother each month. This is for board payment and the rest she will save for me. (Saving around £400 a month).

If in a couple of years time, i need this money, e.g. for a house etc, my mum will send it to me. The thing is, this will then be a large transfer of thousands into my bank.

Will this count as a gift from my mother to me? Even though i have been sending her the money each month?

Thanks for any help as its quite confusing!

OldMusicGuy

I can't see anyway that this will be anything other than a gift from your mother. You have given it to her, she is giving it back to you. I think it could be subject to inheritance tax if she dies within 7 years of giving it to you.

IMO you should be investing the money yourself in a LISA and/or other investments that will grow. Unless your mother is investing this for you, it is sat there doing nothing and is therefore going down in value. Just pay her for food or whatever and save the rest yourself.

We are in a similar situation. My son has just started work and is living at home. He pays us a monthly amount for food and we were going to ask him to pay us a realistic figure for rent which we would save for him. The idea was to get him used to budgeting for rent even though he was living at home. But we decided it made more sense just for him to save it and add to his existing savings and investments (he has money in an investment trust which he is adding to and will probably start a LISA).

Why do you need to pay this money to your mother and have her save it? Unless she is an investment expert, it makes little sense. You are a grown up now, time to take responsibility for your own budgeting. Don't want to sound harsh but we recently had the same discussion with our son.

Jono987

Hi, thanks for your reply.

I may as well be honest I am a recovering Gambling Addict, and thus i dont want to put myself in a situation for the forseeable future where i have access to money. I am trying to limit myself as much as possible and thus send most to my mother for her to save.

If it is as you say though (and as i thought as well) i dont really want to put my own money in a position where it can be taxed again!

ViolaLass

WHat if you opened an account but gave your mother all the details (passwords etc) for controlling it. That way the money is still legally yours but you can't get to it without asking her.

Jono987

Hi, thanks for your reply. I had considered this, but there is always a way for me to recover the account, be it going into a branch / resetting details etc etc. I dont trust myself at this moment in time and my counsellor recommends i have zero access to my money for a very long time.

ViolaLass

A joint account? Maybe one that can't be accessed without permission from both holders?

I've never had one but I have a memory of being offered one once so they may still exist.

xylophone

If you have a house purchase in view, why not open a LISA?

You could also open branch accounts, send the money electronically to these accounts from yours but give your mother the passbooks?

bowlhead99

I agree with the posters above that if she has money in her accounts and then later gives that money to you, it will be seen as a gift.

You do not pay tax to receive gifts and she does not pay tax to give gifts. However, if she is wealthy or if the amounts involved are large, inheritance taxes might be an issue when she dies. If she gives you a big gift of thousands of pounds a couple of years before she dies, the taxman will say to add all that money back into her 'estate' before calculating the tax on the entire estate. That could result in a lot of painfully unnecessary inheritance taxes.

Alternatively, say she is at the other end of the scale and not wealthy so there is no risk of inheritance taxes because she doesn't have much. At the poorer end of the scale, there are things like claiming benefits or needing care to be provided by the council if you're in a bad shape health-wise ; which are means tested. If she has a lot of cash in her accounts, or has recently 'given it away' to you, the authorities might class it as 'deprivation of assets' and do the means test as if all the money still belongs to her.

So giving her money for safekeeping is not the sort of thing that's helpful for those scenarios, because of the assumption that money given to her, is her money. Which it is because you don't want to be let near it.

The simplest thing to do would be to just properly document it as a loan to her, interest free and repayable on demand. Each month you give her money, and the loan balance increases by £400. Eventually she will pay off the loan but it will not be her giving a gift, it will be returning the money she owes you which was documented with a paper trail; and nobody will try to add it back for inheritance taxes or means testing.

Of course, you might not want it to be 'repayable on demand' if there was a danger you might just decide to demand it and she would in practice hand it over for you to gamble with. But if she refused would you go so far as suing your own mother for the debt? People do crazy things. If you might do that (and risk her kicking you out etc etc) then maybe it is just better that you give it to her freely as a gift each month and then you can't demand it back. The 'threat' of tax is not something that should be allowed to get in the way of your wellbeing.

Jono987

bowlhead99 wrote: »

I agree with the posters above that if she has money in her accounts and then later gives that money to you, it will be seen as a gift.

You do not pay tax to receive gifts and she does not pay tax to give gifts. However, if she is wealthy or if the amounts involved are large, inheritance taxes might be an issue when she dies. If she gives you a big gift of thousands of pounds a couple of years before she dies, the taxman will say to add all that money back into her 'estate' before calculating the tax on the entire estate. That could result in a lot of painfully unnecessary inheritance taxes.

Alternatively, say she is at the other end of the scale and not wealthy so there is no risk of inheritance taxes because she doesn't have much. At the poorer end of the scale, there are things like claiming benefits or needing care to be provided by the council if you're in a bad shape health-wise ; which are means tested. If she has a lot of cash in her accounts, or has recently 'given it away' to you, the authorities might class it as 'deprivation of assets' and do the means test as if all the money still belongs to her.

So giving her money for safekeeping is not the sort of thing that's helpful for those scenarios, because of the assumption that money given to her, is her money. Which it is because you don't want to be let near it.

The simplest thing to do would be to just properly document it as a loan to her, interest free and repayable on demand. Each month you give her money, and the loan balance increases by £400. Eventually she will pay off the loan but it will not be her giving a gift, it will be returning the money she owes you which was documented with a paper trail; and nobody will try to add it back for inheritance taxes or means testing.

Of course, you might not want it to be 'repayable on demand' if there was a danger you might just decide to demand it and she would in practice hand it over for you to gamble with. But if she refused would you go so far as suing your own mother for the debt? People do crazy things. If you might do that (and risk her kicking you out etc etc) then maybe it is just better that you give it to her freely as a gift each month and then you can't demand it back. The 'threat' of tax is not something that should be allowed to get in the way of your wellbeing.

Thanks for the very insightful reply and thanks to all the rest of you too!

I Have opened a help to buy ISA so thats £200 spoken for there. I am going to try speak to my bank later (HSBC) and remove all internet banking options from the account, so the only way i can withdraw money is at the branch. Then im going to leave my wages as they are for the next few months (6 maybe) while i really try to beat my addiction and get myself in a better place.

OldMusicGuy

Jono987 wrote: »

I may as well be honest I am a recovering Gambling Addict, and thus i dont want to put myself in a situation for the forseeable future where i have access to money. I am trying to limit myself as much as possible and thus send most to my mother for her to save.

Fair enough, and best of luck to you. I can see the sense in what you are proposing now. Lots of good advice from others on this thread.

Alexland

Jono987 wrote: »

I Have opened a help to buy ISA so thats £200 spoken for there. I am going to try speak to my bank later (HSBC) and remove all internet banking options from the account, so the only way i can withdraw money is at the branch. Then im going to leave my wages as they are for the next few months (6 maybe) while i really try to beat my addiction and get myself in a better place.

We wish you the best of luck - it's always great to see a poster who is making progress to improve their life. You are on a good path, now focus on the results financial discipline can deliver for you.