How do you avoid higher rate tax on savings interest

BoGoF

If an IFA were to recommend transferring £250,000 to a parent to score 5% interest I'll eat my hat. And I would suggest an IFA wouldn't be particularly knowledgeable in these areas.

xylophone

Additionally, when I said I was renting I’m actually staying with my parents currently and I’m paying towards some of the household expenses.

In this particular set of circumstances,   mother could keep the interest on the loan and any contribution to household expenses could  be very modest?

wmb194

Tax evasion is what people have been saying, not avoidance. To minimise the worry for both my parents and me and also the hassle I'd go with low coupons gilts but that's me.

jimjames

saverspavers61 said:

Additionally, when I said I was renting I’m actually staying with my parents currently and I’m paying towards some of the household expenses. So, all in all, the risk of me losing out is highly unlikely.

That might change things, if your parents own their own home could you effectively buy into that while you're living there? Or would £250k be more than the value?

MacPingu1986

saverspavers61 said:

There’s a very mixed set of opinions on this one. I’d rather put “detection” by HMRC to one side. For as much as any transaction may never reach them, I’m solely focused on whether the plan is legal.

It's legal as long as you declare the interest (because it's actually your income even if it's in your parents bank account) to HMRC on your tax return and pay the higher tax rate. 

A few have referenced it being a “tax avoidance arrangement”. Isn’t that the whole point of tax avoidance? That you’re utilising allowances, relationships, transactions etc. to reduce tax owed to HMRC?

It's tax evasion, not avoidance (although on an internet forum people may occasionally use these interchangeably) - The legitimate allowances you're allowed to use to avoid tax (ISA, spousal allowances etc...) have already been mentioned. Using a non-spouse's personal allowance by having them declare income that is in fact yours - is tax evasion.

My plan after this is to meet again with an IFA and specifically raise the terms “gift with reservation” and “settlements” legislation.

An IFA won't be qualified to advise on the details and specifics of these aspects of personal taxation - you'll want to speak to a tax advisor if you want professional advice on this.

Both of these terms are entirely new to me and Google clearly failed me when searching all number of permutations related to transfer of funds between family to avoid income tax.

Personal tax, laws and HRMC guidance in these areas can get very technical so general searching can be difficult if you don't know what you're looking for. The "family transfer" point here is irrelevant though it'd be the same position whether you were planning on gifting the money to anyone for this arrangement (apart from a spouse because they have a specific exemption under law)

Replies above... In summary - you cannot use the arrangements you've described (or similar) to reduce the tax due on the interest.