Helping Mum plan to reduce exposure to Tax on Savings Interest - thoughts invited

Angelica123

Your family may be tight now but nothing tears a family apart quicker than money disputes. Your proposal is risky and depends on no one's situation changing - your mum may remarry, you and your sister might have children or new partners, your mum's care needs might exceed what your sister can provide, your sister's personal situation may change such that she no longer can or wants to look after your mum. 

Using your ISA allowances (but expecting the money to still be hers) is a no go. It's considered tax evasion most importantly. But what happens if you have an unexpected large expenditure and dip into that ISA? It's messy. 

She could put 50k in premium bonds. She could ladder fixed savings bonds so interest falls in different tax years. 

Any decision she makes should be because it's the best thing for her. In her situation, her paying tax on interest is not the end of the world. It's certainly better than the solution you are suggesting.  

WYSPECIAL

You don’t mention ages but is tying up money that might be needed for ten years a good idea?
What if one, or all, of you predeceases her, has financial problems or there is a divorce?
what were the plans before dad died and why have they changed?

poppy10_2

MacPingu1986 said:

On the ISA point... No you cannot avoid tax by opening ISA accounts in other people names for money belonging to your mother - this is tax evasion. The ISA declaration on opening also expressly includes a statement that the contributions belong to [Named Account holder].

But if they've been gifted to the OP then the contributions to belong to him. 

Marmaduke123

I'm in a similar position to "Mum", but a few years older, and  would not consider giving up control of my savings! The tax payable on savings interest is a drop in the ocean.

Have you actually discussed this plan with your mother? Is she financially savvy enough to understand the implications? If not you would be taking advantage of her however pure your motives.

MacPingu1986

poppy10_2 said:

MacPingu1986 said:

On the ISA point... No you cannot avoid tax by opening ISA accounts in other people names for money belonging to your mother - this is tax evasion. The ISA declaration on opening also expressly includes a statement that the contributions belong to [Named Account holder].

But if they've been gifted to the OP then the contributions to belong to him. 

The OP isn’t talking about their mother unilaterally gifting them £20k.

the scenario presented is - can you ask a family member (other than where spousal exemptions apply) to invest your money in their name, on your behalf, on the understanding the money and any investment proceeds remains yours. You can’t share ISA allowances in this way to evade income tax or CGT and this isn’t gifting. It’s a breach of the ISA rules and tax evasion. It’s a non-starter.

Albermarle

MacPingu1986 said:

poppy10_2 said:

MacPingu1986 said:

On the ISA point... No you cannot avoid tax by opening ISA accounts in other people names for money belonging to your mother - this is tax evasion. The ISA declaration on opening also expressly includes a statement that the contributions belong to [Named Account holder].

But if they've been gifted to the OP then the contributions to belong to him. 

The OP isn’t talking about their mother unilaterally gifting them £20k.

the scenario presented is - can you ask a family member (other than where spousal exemptions apply) to invest your money in their name, on your behalf, on the understanding the money and any investment proceeds remains yours. You can’t share ISA allowances in this way to evade income tax or CGT and this isn’t gifting. It’s a breach of the ISA rules and tax evasion. It’s a non-starter.

I understand your point but if there is nothing in writing and the understanding is that the money will be gifted back if necessary/needed, I think at best it is a grey area whether it is tax avoidance or evasion.

xylophone

Your mother could consider lending your sister £130,000 on an interest free basis secured against your sister's property.

She could consider lending you and your wife £60,000 on an interest free basis secured against your property.

NewYorkNo1fan

I can understand you trying to save paying interest on savings but why not legally get Mum’s savings down by suggesting she gives some of her money as gifts now. Then provided she doesn’t die within 7 yrs, there will be no inheritance tax to pay on each gift (sliding scale % if she dies within the 7 yr limit). 
she can gift 3K a year without any tax implications and a further £250 to anyone she chooses.
provided it is never seen as a deprivation of her assets if ever she were to need care home fees.

This is the exact scenario I find myself in with my mother. Her Financial adviser advised her to give myself and other siblings a nominal sum of money each now, so that we could benefit from it now rather than waiting for her ultimate demise, and should it be that her death occurred within the next 7 yrs, we would declare it to HMRC when required to do so. He also took into account any future care home fees so that she would still be able to self fund for a number of years, thereby not leaving her destitute by any means.

By the sounds of it your Mum will still be comfortably off and have enough money to meet her needs but might get pleasure seeing the money I presume you will ultimately inherit, actually bring joy and usefulness prior to this.

Definitely max out her ISA each year and Premium bonds too.
just a suggestion.

Frogletina

NewYorkNo1fan said:

 Then provided she doesn’t die within 7 yrs, there will be no inheritance tax to pay on each gift (sliding scale % if she dies within the 7 yr limit). 
 

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

Albermarle

Frogletina said:

NewYorkNo1fan said:

 Then provided she doesn’t die within 7 yrs, there will be no inheritance tax to pay on each gift (sliding scale % if she dies within the 7 yr limit). 
 

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

Otherwise the whole gift is counted back in, if the death is within 7 years

Due to the general misunderstanding about taper relief which you highlighted, I just added a further comment to push the point home.