Grandparent Saving for Grandchild

Wilma1571

My mother in law set up a childrens savings account when my son was born (unknown to us) it was set up in her name showing my sons name as a ref. My son is now 21 and wants to access the money - the account changed to an everyday saver when he turned 18. I have contacted the bank to find out how to access the money and they have said the money is still in my mother in laws name so she will need to transfer the money to my son which she is happy to do. My question is can she transfer the whole lot approx 20k in one go, does the money need to be declared, would the 7 year rule apply as my son is already referenced on the account. After spending an hour on the phone to the bank they couldn't tell me. They thought that as he is refernced on the account it would be clear that the money was meant for him so HMRC would be satisfied with that but they couldn't confirm it. I am struggling to get through to HMRC so thought I would see if anyone can help.
Thanks

eskbanker

Wilma1571 said:

My question is can she transfer the whole lot approx 20k in one go, does the money need to be declared, would the 7 year rule apply as my son is already referenced on the account.

Even if it was to be regarded as a gift, there aren't any tax implications or declaration requirements at the time of transferring, and the seven year rule would only become a potential issue if she died during that time and her estate was sizable enough for IHT to come into play....

Keep_pedalling

There is no problem with transferring it in one lump sum and nothing needs to be declared as there is no gift tax in the UK. If your MIL net worth would take her estate into IHT territory then yes the 7 year rule would apply to the non exempt part of this gift, but that would not affect your son in any way it would just use up a bit of her nil rate band.

More_complicated_than_that

It sounds like it is held by your MIL in her capacity as being bare trustee for your son.  This may also be known as her being your son's nominee.  If so, it is your son's money and he could have asked for it from age 18 (16 in Scotland).  If that is right, there are no tax implications for MIL at all (*see more below). Instead you son will pay tax (or not) on the interest in the normal way.  There is no need for your MIL to declare anything.

You might be able to check what your bank's website about the status of the account.  This is what NatWest (for example) say: https://www.natwest.com/savings/first-saver.html  The reference to trust in the context of a straightforward bank account would mean a bare trust.  But some banks won't be explicit.

Our kids savings accounts are written in trust ...

From my perspective, if your MIL is clear she has always been holding the money on behalf of your son until he was old enough and the account mentions his name, that would be enough for me to say that there was a bare trust.

* One caveat on the tax side.  If your MIL just put the money in when he was born, there is no issue.  Is she has put more money in in the last seven years and (i) it hasn't come out of the surplus of her regular income, or (ii) its quite a lot (this is where the various £250 and £3,000 exemptions might be relevant), then it won't effect your son but her executors would need to know about it if your MIL dies and it might reduce her IHT exemption when she dies.  

Albermarle

One caveat on the tax side.  If your MIL just put the money in when he was born, there is no issue.  Is she has put more money in in the last seven years and (i) it hasn't come out of the surplus of her regular income, or (ii) its quite a lot (this is where the various £250 and £3,000 exemptions might be relevant), then it won't effect your son but her executors would need to know about it if your MIL dies and it might reduce her IHT exemption when she dies.  

However to repeat what has already been said, all these types of issues are only relevant if the MIL is likely to have any IHT liability from her estate when she dies, which so far is not at all clear.