Tax evasion or tax avoidance?

TheCyclingProgrammer

Seeing as you asked...

I could imagine that hypothetically HMRC could challenge the arrangement under an obscure piece of anti avoidance legislation known as the “settlements” legislation (s624 specifically) should the gift come with strings attached.

This is where you gift somebody (often a spouse but it doesn’t have to be) some form of property but retain an interest in it in some way such that you continue to benefit from that property and any derived income (it’s usually discussed in the context of gifting shares and dividends paid out on those shares). In this case you would be retaining an interest in the cash gift as you expect to get it back again along with any interest earned from it at a later date.

See example 5:
https://www.gov.uk/government/publications/trusts-and-settlements-income-treated-as-the-settlors-hs270-self-assessment-helpsheet/hs270-trusts-and-settlements-income-treated-as-the-settlors-2018

The chances of this a) coming to HMRCs attention and b) this actually happening are, IMO, slim to none.

As others have said, this can be avoided by making it an unconditional gift. This has risks in itself if you were to split up.

To answer your question it’s avoidance.

All that being said I don’t understand why you can’t jist put it in an ISA of your own. Legal tax avoidance with no strings attached.

Dazed_and_confused

I’d rather not state the exact figure but I understand the personal allowance thresholds on interest

Do you understand how tax on savings interest works?

Have you considered the Personal Allowance, savings starter rate of tax and savings nil rate of tax (aka Personal Savings Allowance)??

A basic rate taxpayer can have upto £5,999 interest before any tax is payable on if.

Andy_L

TheCyclingProgrammer wrote: »

All that being said I don’t understand why you can’t jist put it in an ISA of your own. Legal tax avoidance with no strings attached.

I suspect because it's more than the £20k ISA annual limit or that's already being used up for extra deposit savings?

Nick_C

John_G_Jones wrote: »

What a bizarre question. If you don’t want to receive interest just put it in a current account, but why forego interest just to avoid the tax on it?

What a bizarre comment. OP doesn't want to forego interest. He wants to avoid paying tax on the interest.

AKRev01

TheCyclingProgrammer wrote: »

Seeing as you asked...

I could imagine that hypothetically HMRC could challenge the arrangement under an obscure piece of anti avoidance legislation known as the “settlements” legislation (s624 specifically) should the gift come with strings attached.

This is where you gift somebody (often a spouse but it doesn’t have to be) some form of property but retain an interest in it in some way such that you continue to benefit from that property and any derived income (it’s usually discussed in the context of gifting shares and dividends paid out on those shares). In this case you would be retaining an interest in the cash gift as you expect to get it back again along with any interest earned from it at a later date.

See example 5

The chances of this a) coming to HMRCs attention and b) this actually happening are, IMO, slim to none.

As others have said, this can be avoided by making it an unconditional gift. This has risks in itself if you were to split up.

To answer your question it’s avoidance.

All that being said I don’t understand why you can’t jist put it in an ISA of your own. Legal tax avoidance with no strings attached.

Thank you this is really helpful!

AKRev01

Dazed_and_confused wrote: »

Do you understand how tax on savings interest works?

Have you considered the Personal Allowance, savings starter rate of tax and savings nil rate of tax (aka Personal Savings Allowance)??

A basic rate taxpayer can have upto £5,999 interest before any tax is payable on if.

Andy_L wrote: »

I suspect because it's more than the £20k ISA annual limit or that's already being used up for extra deposit savings?

I do understand how how the personal allowance works.

And whilst I’m not using my full 20K allowance, I’m actually already paying into a HTB ISA which is the equivalent of a cash ISA, therefore cannot open another Cash ISA at all Seeing as I want to use the money in 2-3 years it’s too short term for a S&S ISA, and I do not fancy the risk of an IFISA.

TheCyclingProgrammer

What kind of interest were you hoping to earn in such a short space of time anyway given the historically low interest rates?

Are you a higher rate tax payer?

I’m not sure I’d spend too much time overthinking this, you’re unlikely to earn much interest even on a decent 5 figure sum.

cloud_dog

AKRev01 wrote: »

I do understand how how the personal allowance works.

And whilst I’m not using my full 20K allowance, I’m actually already paying into a HTB ISA which is the equivalent of a cash ISA, therefore cannot open another Cash ISA at all Seeing as I want to use the money in 2-3 years it’s too short term for a S&S ISA, and I do not fancy the risk of an IFISA.

This isn't quite correct. My understanding is that you cannot open a cash ISA with a different provider. If your HTB ISA provider provides, what is referred to as a 'portfolio ISA' you can open a cash ISA with them and utilise any remaining ISA allowance.

Obviously, it depends who you are with but I believe Nationwide and NatWest offer this service.

AKRev01

cloud_dog wrote: »

This isn't quite correct. My understanding is that you cannot open a cash ISA with a different provider. If your HTB ISA provider provides, what is referred to as a 'portfolio ISA' you can open a cash ISA with them and utilise any remaining ISA allowance.

Obviously, it depends who you are with but I believe Nationwide and NatWest offer this service.

Ah yes you’re right - in with Barclays who don’t offer a great Cash ISA rate I believe