Transferring money between accounts held on behalf of a child without tax implications for me

refluxer

I'd like to transfer a 4-figure sum from a bank account that I hold on behalf of my child into an account that I hold on behalf of them with a different bank that is currently earning a higher rate of interest but, unfortunately, I can't do this directly via online banking and it would have to go via the current account that I hold with the same bank.

The issue is that this sum of money will earn over the £100 PA tax limit that money given to them from me is allowed to earn without it being taxed like it's my money, so I'd like to transfer their money without HMRC jumping to the wrong conclusions. Note that the money in their account has not come from me.

So, I think my options are...

1) Transfer it online via my current account anyway and hope that either the HMRC don't pick up on this or, if they do, that me being able to prove (via my bank transaction records) that the money originally came from their account will satisfy them. One concern I have with this approach is that I won't necessarily get notified specifically if they do decide that I need to pay tax on it, so I could end up paying tax on it further down the line without realising.

2) Withdraw the money in cash and pay it into the other bank - both have branches are a 1 minute walk from each-other. I presume that my name wouldn't be associated with a cash deposit and this wouldn't be flagged up to the HMRC ? 

3) Ask the bank to write me a banker's draft (cheque) made out in my child's name. They charge £15 for this (believe it or not) so I'd obviously rather avoid this option.

Any thoughts ? At the moment, I'm favouring option 2 as it avoids option 3's extra charges and I think it's more likely to avoid issues than option 1.

xylophone

If the money goes straight from your child's account with X Bank to your current account and then the same amount is immediately transferred from your current account to  your child's account with Y bank, I can't see that there would be any problem with HMRC.

Does your child have a JISA?

refluxer

xylophone said:

If the money goes straight from your child's account with X Bank to your current account and then the same amount is immediately transferred from your current account to  your child's account with Y bank, I can't see that there would be any problem with HMRC.

I guess it all boils down to how HMRC monitor this kind of thing. While banks are required to report interest earned every year to HMRC, presumably they're not also obliged to provide details of individual transactions should the HMRC want to know where the money earning that interest came from ? Makes me wonder how they can police and enforce the £100 rule. 

Either way, I'm happy to provide proof that everything is legit and above board but I'm keen to avoid getting into that situation in the first place, if I can help it.

xylophone said:

Does your child have a JISA?

Yes - I pay into that so there are obviously no tax implications there.

TiVo_Lad

Looking at the HMRC Forums the general response from HMRC to these sorts of questions is they're not interested if there are no tax implications around interest and you don't personally benefit from the transaction. If the money doesn't earn any interest while it's passing through your current account and you're merely using your current account to facilitate the movement of funds between two accounts that are in your child's name to the benefit of your child, I really don't think they'd be bothered.

As is always the case with these things, keep records, especially the restriction that you couldn't transfer the funds directly and the new account was at a higher rate.

wmb194

I cannot find it but I read a while back that HMRC accepts that in order to move money between a child's accounts it sometimes has to make a hop through a parent's/trustee's account so I wouldn't (and never have myself) worry about it. The odds that it will ever notice let alone care are slim to none anyway.

refluxer

TiVo_Lad said:

Looking at the HMRC Forums the general response from HMRC to these sorts of questions is they're not interested if there are no tax implications around interest and you don't personally benefit from the transaction. If the money doesn't earn any interest while it's passing through your current account and you're merely using your current account to facilitate the movement of funds between two accounts that are in your child's name to the benefit of your child, I really don't think they'd be bothered.

As is always the case with these things, keep records, especially the restriction that you couldn't transfer the funds directly and the new account was at a higher rate.

Thanks for the reply. The issue for me isn't that I'll benefit in any way from the money though - it is that, because transferring the money online would be via my own current account (option 1), as far as the receiving bank (and possibly HMRC) are concerned, the money will technically appear to be a gift from me and the rule is that any interest over £100 earned on money given to a child from a parent is then taxed as if it was part of the parent's income. Therefore there are tax implications with what I'd like to do, as I could potentially end up paying tax on my kids' interest.

I think this rule was originally put in place to stop parents stashing large amounts of their own cash in their kids' bank accounts, which they did in order to dodge tax as well as benefit from the (generally) higher interest rates found in children's savings accounts. 

refluxer

wmb194 said:

I cannot find it but I read a while back that HMRC accepts that in order to move money between a child's accounts it sometimes has to make a hop through a parent's/trustee's account so I wouldn't (and never have myself) worry about it. The odds that it will ever notice let alone care are slim to none anyway.

Yes, I haven't been concerned about this in the past either however, with the way interest rates have shot up in the last 12 months, I need to pay more attention to this kind of situation now just to make sure that either myself or my kids don't lose out

This gov.uk link actually implies that it's up to the parent to declare it, which I presumably wouldn't need to.

wmb194

refluxer said:

wmb194 said:

I cannot find it but I read a while back that HMRC accepts that in order to move money between a child's accounts it sometimes has to make a hop through a parent's/trustee's account so I wouldn't (and never have myself) worry about it. The odds that it will ever notice let alone care are slim to none anyway.

Yes, I haven't been concerned about this in the past either however, with the way interest rates have shot up in the last 12 months, I need to pay more attention to this kind of situation now just to make sure that either myself or my kids don't lose out

This gov.uk link actually implies that it's up to the parent to declare it, which I presumably wouldn't need to.

Having it pass through your account momentarily doesn't transform it into a gift from you so I wouldn't worry.

TiVo_Lad

refluxer said:

I think this rule was originally put in place to stop parents stashing large amounts of their own cash in their kids' bank accounts, which they did in order to dodge tax as well as benefit from the (generally) higher interest rates found in children's savings accounts. 

As you mentioned originally though, you're not moving money back and forth between your child's account and your own account; it's coming out of Child Account #1 through your Current Account and into Child Account #2. You don't benefit from that transaction. Any taxable considerations would only crystalise when interest is paid. If it's paid into your Child's Account and it stays there HMRC could never argue that you were stashing your own money away or gaining a better interest rate, especially if other transactions on the child's account make it clear the child is saving their own money. Records are important, so doing it via your current account gives a clear audit trail whereas withdrawing everything in cash and walking it across the road leaves a questionable gap (however small).

I think you're probably worrying unnecessarily. You're not trying to defraud HMRC and HMRC have bigger fish to fry (Mr Zahari). If in doubt, phone HMRC and get a definitive answer.