Clever gifting out of excess income or not?

Madeinireland101

born_again said:

Although I haven’t gifted the money and it’s still in my estate 

How so?

Money in a ISA is theirs. As it is under their name. 

Maybe HMRC would have a view on this.

It’s a loan so it’s still in my estate as far as I know. What the kids do with the loan to make money is up to the kids. I was just suggesting a basic ISA as a starting point.

Madeinireland101

Flugelhorn said:

they don't have to give the money back - if you insisted on this, then they could reasonably decide that they want to use their ISA allowances for their own money 

do you have 200K excess income per year?

They could but currently don’t so I think they would find the thought of free money interesting. I don’t have £200k of excess income but I do have that in capital that could loan to them.

Madeinireland101

FlorayG said:

My thought is that HMRC will find out and want to know why you would loan someone money to just put in a savings account and not make any attempt to make repayments. Effectively this is STILL a gift

I’m not sure why HMRC would be bothered if I did this. It’s not breaking any laws and it’s not a gift as I would have a formal interest free loan agreement.

Madeinireland101

HappyHarry said:

This is a gift and loan scheme and not uncommon.  It often involves a trust but I can’t see any reason why you can’t loan the funds to your children directly. 

As it is a loan, the capital will remain as part of your estate, but the income or growth that your children make on your capital never belongs to you and so is exempt from inheritance tax. 

Not sure what your reference to excess income is about?

Yes I think you have got it and I think prehaps I’ve not been clear enough. I could give my kids £10k a year out of excess income and do all the rubbish of recording income and expenditure or I could lend them some of my wealth (which I’m suggesting here) and let them take the excess income directly - I guess I’m merely checking if there are any issues around doing this - I can’t see any, as yet, but just asking here if it’s viable - it seems that I haven’t explained it very well and so some people haven’t understood.

Madeinireland101

[Deleted User] said:

Madeinireland101 said:

If…
1. I have £200k and I loan it to my kids over a five year period - £20k per year each and there are two kids.

2. They earn £10k per year by putting it in ISA’s by the end of 5 years.
3. I can at any time get the money back if I need it for any reason.
 

Although I haven’t gifted the money and it’s still in my estate I am now in the position where they are earning £10k per year out of my excess income with little  risk to me running out of money and not having to go through all the effort of recording income and expenditure.

Thoughts please?

Absolutely fine (provided your executors can show they are genuine loans, repayable on demand, your kids are over 18 and there are no arrangement where you could somehow (directly or indirectly) get the interest from the kids).

Thanks - I think you have understood my poorly laid out plan. There would be loan agreements and actually have no interest in getting back the interest as the whole point is gifting it to them without all the normal rubbish of recording income and expenditure and the risk that HMRC may find fault with it when I’m gone.

kempiejon

I don't think it's a gift. It's a loan. It's out of capital and not excess income. It sounds like a loan the spawn didn't ask for nor know they're getting? How is it clever exactly?
Anyhow as I have no idea what parent-offspring relationship you have, if you can afford it and really want to help them a gift is better than a loan. However it seems the motivation is minimising admin, in which case why not. 
My father lent my siblings money to buy their first houses. I never troubled him.

HappyHarry

Madeinireland101 said:

HappyHarry said:

This is a gift and loan scheme and not uncommon.  It often involves a trust but I can’t see any reason why you can’t loan the funds to your children directly. 

As it is a loan, the capital will remain as part of your estate, but the income or growth that your children make on your capital never belongs to you and so is exempt from inheritance tax. 

Not sure what your reference to excess income is about?

Yes I think you have got it and I think prehaps I’ve not been clear enough. I could give my kids £10k a year out of excess income and do all the rubbish of recording income and expenditure or I could lend them some of my wealth (which I’m suggesting here) and let them take the excess income directly - I guess I’m merely checking if there are any issues around doing this - I can’t see any, as yet, but just asking here if it’s viable - it seems that I haven’t explained it very well and so some people haven’t understood.

There are no tax issues - providing the children are over 18. 

Lots of parents loan children money to purchase a house with. The loan is often at zero percent interest, and the children, not the parent, get to keep any increase in the house value. What you are suggesting doing is pretty much the same thing.

Madeinireland101

[Deleted User] said:

kempiejon said:

How is it clever exactly?

It's not.  It's as old as the hills.

Yes maybe it’s not clever but from my point of view it would be a clever way of avoiding a heap of paperwork and the risk that HMRC do not allow my gifting out of income because I haven’t documented things correctly.

Madeinireland101

HappyHarry said:

Madeinireland101 said:

HappyHarry said:

This is a gift and loan scheme and not uncommon.  It often involves a trust but I can’t see any reason why you can’t loan the funds to your children directly. 

As it is a loan, the capital will remain as part of your estate, but the income or growth that your children make on your capital never belongs to you and so is exempt from inheritance tax. 

Not sure what your reference to excess income is about?

Yes I think you have got it and I think prehaps I’ve not been clear enough. I could give my kids £10k a year out of excess income and do all the rubbish of recording income and expenditure or I could lend them some of my wealth (which I’m suggesting here) and let them take the excess income directly - I guess I’m merely checking if there are any issues around doing this - I can’t see any, as yet, but just asking here if it’s viable - it seems that I haven’t explained it very well and so some people haven’t understood.

There are no tax issues - providing the children are over 18. 

Lots of parents loan children money to purchase a house with. The loan is often at zero percent interest, and the children, not the parent, get to keep any increase in the house value. What you are suggesting doing is pretty much the same thing.

Yes thanks and they are both over 18.

kempiejon

Madeinireland101 said:

[Deleted User] said:

kempiejon said:

How is it clever exactly?

It's not.  It's as old as the hills.

Yes maybe it’s not clever but from my point of view it would be a clever way of avoiding a heap of paperwork and the risk that HMRC do not allow my gifting out of income because I haven’t documented things correctly.

Nah, I don't still don't get it. HMRC don't really care who you lend your money to. You're not gifting, nor is it out of income, it's from capital.
I think you're making up "the risk that HMRC do not allow" something you're not doing.