How do you avoid higher rate tax on savings interest
Hoping for some further advice on a topic which has been previously posted but now closed.
I have a significant amount of money in savings accounts generated from selling my home. I’m currently in private rented accommodation waiting for the housing market to cool before once again purchasing a home. The funds are in excess of £250,000 and is currently earning over 5% across a number of easy access accounts.
As a higher rate tax payer, I’m paying over 40% on the interest which I would like to avoid. Apologies in advance to anyone who believes that may be morally questionable.
My parent is retired and in receipt only of a modest private pension (pre state pension age) and the vast majority of their personal allowance is unused. My other parent is still working in a high income job so supports them both financially.
To reduce my tax burden, my intention is to transfer all of my funds to my parent who will subsequently earn interest on the funds. At a future date, likely in 18 months, they will transfer all funds and accrued interest back to me.
Firstly, I would like to know if this is a legal way of avoiding tax?
What are the risks of following the above approach in terms of any income and/or inheritance tax liability in future?
The risks I would like to exclude here is that 1) they would simply refuse to return the funds and 2) if I were to pass away myself within 7 years of initially transferring the funds.
My parent is in good health and fully expect they will still be with us in 7 years from the date of returning the funds to me. That being the case, if 7 years passes, is there any tax liability on me whatsoever?
However, if they were to pass away within 7 years, is my only exposure the potential for inheritance tax to be applied?
Regarding inheritance tax, as my parents are married am I correct in thinking that 1) their full estate could be transferred to my other parent with no inheritance tax liability (including the £250,000 which I have sent them) and 2) my parent who received the funds from me would be able to return the ~£250,000 to me as part of their estate and there would be no inheritance tax due as the value is below £325,000? They have no other significant assets to speak of other than those held jointly as a married couple.
As a side note, I’m surprised about how little information is available about this topic on .gov websites. While there is plenty of information around transferring to a spouse there is very little about transferring to a parent with the express intention of transferring it back at a future date.
There are however separate articles about gifting money to a family member as well as articles on inheritance tax implications when transferring from a parent to a child. From reading these, it would appear there is no limit on the amount of money I can choose to transfer to a parent and there would be no tax liability to me. For my parent, should the interest earned from the funds remain within their personal allowance then they would also have no tax liability to speak of.
Would be useful to get some views on this from others.
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