OEIC investment (accumulation shares) for grandchildren (cashing out after 18 yrs)

Pricklyhedgehogs

In 2006 my kids grandma transferred retail accumulation shares valued at  £13k) into two accounts into my children's fathers name - HSBC OEIC's on the advice of HSBC financial advisor. I understand minors cannot hold OEICS (they were toddlers at the time). The money was always meant to be solely for them at age 18. Designations were put on the account at this time of their names.

We can find no paperwork relating to a trust, other than a handwritten note by advisor stating "will with discretionary trust - solicitor to action", ?? nor has anything been registered with TRS. Grandma now deceased.

Children, (now over 18) want money out. HSBC will only pay out to father as seem to recognise him only as legal owner of OEIC. Current value is £29k. They will transfer to children if they all complete paperwork (complex) but does this hold him still liable for tax as a gift/disposal?

Is it best to ascertain most tax efficient way for him to withdraw money in his own name, to immediately gift to children? He earns approx £42k. Would this be CGT at 20%??
Am aware of the time factor now as CGT due to reduce to only £3k in April 24.

If a part withdrawal for £6k this tax year was done, and then in April the remainder was withdrawn I'm unsure how to calculate the CGT due. 

Can the original £13k investment be deducted from the total as it stands now (£29k) in order to calculate the gain?

To complicate calculations more, there are tax vouchers issued every 6 months/year with dividend income which is reinvested back into fund. These amounts are small £20-£100 ish so assume would not have needed to be declared, as well under dividend allowance. Do these also need to be taken into account when calculating CGT?.
I don't even know who to go for advice. All the above has been hours of googling!! If you've got this far, thank you so much for reading! 

aphecs

It seems legally the father is the registered owner of the shares. Unfortunately Grandma's intentions are irrelvenat here. 

This means the father will be liable for any tax on disposal or transfer. Your proposal to starddle to disposal over this and next tax year is probably sensible. The dividend vouchers can be ignored so the capital gain would be £16k. If you sell £6k before April that can be CGT tax free (assuming no other gains made elsewhere by father). That then leaves £10k which you could sell in full after April and pay £1400 tax (20% of £7k given the £3k allowance) or again just sell £3k and hold the rest for the following tax year. Rememebr that the valuation could go up and down in the meantime.

Caveat - i am not a tax advisor but just suggesting what i would look to do.

xylophone

In 2006 my kids grandma transferred retail accumulation shares valued at  £13k) into two accounts into my children's fathers name - HSBC OEIC's on the advice of HSBC financial advisor. I understand minors cannot hold OEICS (they were toddlers at the time). The money was always meant to be solely for them at age 18. Designations were put on the account at this time of their names.

There were two accounts, one designated for each child.  

They were not left by will, so the advisor's note seems irrelevant to the case. 

Such evidence as there is appears to indicate that the grandmother made a gift of shares to each child (NOT to her son) some time before her death, and the only reason that the shares were in the father's name was the the children were too young for them to be held in their own names.

It is unfortunate that there is not even a letter from grandmother indicating that the shares were an  outright gift to each child at the time the gift was made, but I am wondering whether their father could make a case for there having been an implied bare trust for each of them.

If so, each child's own income/dividend  tax allowances  could be used as could their individual CGT allowances.

The father could sell the holdings and then pass the money to the children on this basis?

dunstonh

It is unfortunate that there is not even a letter from grandmother indicating that the shares were an  outright gift to each child at the time the gift was made, but I am wondering whether their father could make a case for there having been an implied bare trust for each of them.

Back in the day when designations were common, we would have a mock up certificate that acted as a record of gift.   

ColdIron

aphecs said:

Your proposal to starddle to disposal over this and next tax year is probably sensible. The dividend vouchers can be ignored so the capital gain would be £16k. If you sell £6k before April that can be CGT tax free (assuming no other gains made elsewhere by father). That then leaves £10k which you could sell in full after April and pay £1400 tax (20% of £7k given the £3k allowance)

If you sold £6,000 and then £10,000 you would have £13,000 outstanding

What you would do is sell sufficient 'shares' to realise a £6,000 gain so £10,875. The remaining £18,125 would then be sold. That £10,000 gain less the £3,000 exempt amount * 10% CGT would be £700

As it's an accumulation OEIC (and the dividends are retained within the fund) you should deduct the dividends from the £16,000 to further reduce the gain, you don't want to pay tax on them twice

Pricklyhedgehogs said:

In 2006 my kids grandma transferred retail accumulation shares valued at  £13k)

...

Can the original £13k investment be deducted from the total as it stands now (£29k) in order to calculate the gain?

Was the £13,000 the value at transfer or grandma's acquisition cost? You need the latter for CGT purposes

Pricklyhedgehogs

Thank you to everyone who has taken the time to reply. I am so grateful.
£13k was the transfer amount in 2006. I need to find out if grandma had these shares well before 2006, or indeed if she purchased them for all of her grandchildren in 2006 and transferred immediately (other cousins, or their parents) cashed in some years back). (thanks Cold Iron)
I probably also need to find/obtain tax vouchers (dividends) going back to 2006 like Cold Iron mentioned (thanks), in order to reduce the liability further. 
Very interesting point - Xylophone(thank you) about the potential evidence for an implied bare trust/gift from grandma. And then my kids could use their own CGT allowances - I don't know how to prove this though or where best to take definitive advice from?     
One thing that am still perplexed by is doing a part disposal over different tax years and how to calculate the 'gain'. Would the 2006 value and all dividends be deducted from the first disposal?
Thanks once again to all.  

  

Malthusian

aphecs said:

It seems legally the father is the registered owner of the shares. Unfortunately Grandma's intentions are irrelvenat here. 

This means the father will be liable for any tax on disposal or transfer. 

I disagree. The accounts have designations in favour of the grandchildren which evidences that the accounts were intended to be held by the father as bare trustee for the grandchildren. This has been common practice for bare trust OEIC accounts for years. It is normal for bare trusts of this kind to not have any formal trust deeds.

This means the grandchildren own the shares and are liable to ongoing tax on dividend and CGT on disposal in their names. 

The bare trusts would now be required to register with HMRC, but this requirement has only come into force in the last few years, and the beneficiaries want to wind the trusts up, so this isn't really an issue. (Unless HMRC send a letter saying the trusts need to be registered.)

ColdIron said:

Was the £13,000 the value at transfer or grandma's acquisition cost? You need the latter for CGT purposes

No. Whoever it was made to, the gift was a disposal for CGT purposes and the grandma was liable to any CGT at that time. Considering the amounts involved, it is possible any realised gains were within her allowance and there was nothing to pay or report on the gift.

The acquisition cost is the value of the shares as at the date they were transferred into each child's name (or the father's). So 13k/2 = £6,500 each according to the information provided by the OP.

Pricklyhedgehogs said:  

One thing that am still perplexed by is doing a part disposal over different tax years and how to calculate the 'gain'. Would the 2006 value and all dividends be deducted from the first disposal?

If a grandchild sells say 50% of their holding, the gain is simply 50% of the total current gain. So [50% of current value] minus [50% * £6,500 + 50% of all reinvested dividends].

ColdIron

Malthusian said:

ColdIron said:

Was the £13,000 the value at transfer or grandma's acquisition cost? You need the latter for CGT purposes

No. Whoever it was made to, the gift was a disposal for CGT purposes and the grandma was liable to any CGT at that time. Considering the amounts involved, it is possible any realised gains were within her allowance and there was nothing to pay or report on the gift.

Perhaps. I had assumed it was a gift between spouses which would not have been a disposal. It would seem to revolve around this point

LHW99

Back in the day, putting a designation on a trust eg "Mrs X So&so Re: Master PQ So&so" seemed to be how companies dealt with an investment in a child's name. I did this for my own children, and there didn't seem to be any question that the money was theirs (AFAIK I filled in forms at the end of each tax year to reclaim dividend tax for them).

Does any of the paperwork have the account named in this way?

If so, then you have proof of the account status and as Malthusian says,

This means the grandchildren own the shares and are liable to ongoing tax on dividend and CGT on disposal in their names.

Pricklyhedgehogs

LHW99 said:

Back in the day, putting a designation on a trust eg "Mrs X So&so Re: Master PQ So&so" seemed to be how companies dealt with an investment in a child's name. I did this for my own children, and there didn't seem to be any question that the money was theirs (AFAIK I filled in forms at the end of each tax year to reclaim dividend tax for them).

Does any of the paperwork have the account named in this way?

If so, then you have proof of the account status and as Malthusian says,

This means the grandchildren own the shares and are liable to ongoing tax on dividend and CGT on disposal in their names.

Thank you LHW99. Yes, all the paperwork going back as far as 2006 has designations on the accounts stating the kids full names.  HSBC however refuse to pay out to the kids bank accounts. All dividend/tax statements in fathers name as primary holder.
They have asked over the past year for proof of a trust, but father did not understand this request (neither do I really)?! There is no proof and it was indeed HSBC's own in branch financial advisor who set this all up back in 2006 with Grandma.   

If there is indeed an implied trust/bare trust as other posters have mentioned it begs the question would the CGT allowance only be £3k this year,  according to HMRC webpages about amounts trusts can earn tax free or have I got this all wrong?!     

Malthusian

ColdIron said:

Perhaps. I had assumed it was a gift between spouses which would not have been a disposal. It would seem to revolve around this point

It would be technically possible for the OP's grandmother to marry her grandchildren's father if they were on the opposite sides of the family tree, but rather unusual.

Pricklyhedgehogs said:

Thank you LHW99. Yes, all the paperwork going back as far as 2006 has designations on the accounts stating the kids full names.  HSBC however refuse to pay out to the kids bank accounts. All dividend/tax statements in fathers name as primary holder.

Can the father withdraw the money and give it to the kids?
If this would be an issue for whatever reason, I would push back on HSBC's refusal to pay into the kids' bank accounts. I would understand HSBC's stance if the designations were just the kids' initials (also common practice). But refusing to pay out when they know the accounts were held for the benefits of those named individuals seems obstructive.

They have asked over the past year for proof of a trust, but father did not understand this request (neither do I really)?! There is no proof and it was indeed HSBC's own in branch financial advisor who set this all up back in 2006 with Grandma.   

As mentioned above it is common practice for bare trusts not to have formal paperwork beyond the application form which set up the accounts with the designations. HSBC are being obtuse here.

If there is indeed an implied trust/bare trust as other posters have mentioned it begs the question would the CGT allowance only be £3k this year

It's a bare trust which means the funds are taxed as the children's, as individuals. So they have a £6k capital gains allowance each (£3k in 2024/25).

*edit* Corrected recurring error of "HMRC" for "HSBC".