Tax on cash gifts to my children

[jay clock]

I got divorced a few years back. Due to a complicated cash split, my ex wife got more money upfront, and now has to pay me back a large-ish sum. I plan to "give" a third of it to each of my three daughters to pay off some of the student loans they are about to clock up (eldest is in 2 yr of uni, youngest in first year of A levels)

I am told that gifts are taxable? The only answer I can get on this online seems to relate to inheritance tax, and since I don't plan to die just yet, am not too bothered about this.

So what I would ideally like to do is to put the money into 3 separate accounts in their names, with me as a second signatory, so that the tax on the interest is at the lower rate or at zero (as they earn little or nothing) but that they cannot go and take it all out to spend on clothes.

Any views, or advice? Any pointers on good websites to go to?

 

[cisamcgu]

This gives some info

Basically, if you stay alive for 7 years then there will be no inheritance tax. I don't know about the possibilities of two signature accounts. I would imagine that you will have to pay income tax on any interest.

Andrew

 

[HelenD123]

I found this link on direct.gov. Any use?

I thought I'd heard as well that there is an amount you can give tax free to your children each year. My dad did something like this to contribute to my sister's wedding costs.

 

[jay clock]

Thanks. That seems to suggest a £100 limit.... sounds very low. In fact two of them are 18 or older, so not sure what impact that has. Presumably they want to avoid "rich" people giving money to low earning relatives who pay no tax....

will give them a call I think

 

[jay clock]

they said (apart fron the inheritance bit if I die in the next 7 years) that there is no problem in giving cash. They will be liable for tax at whatever rate they pay (zero, or 20% if they go over 6000 income in a year)

 

[mr_cellophane]

If they use it to pay off loans rather than invest it there is no problems (except when you die )
If they invest it then any interest over £100 (?) is counted as your money. It is to stop people puting vast sums in the kids names to avoid tax.

 

[Bigtallfatbloke]

(Based on my limited out of date knowledge)

I know you said IHT wasnt an issue for you and you have checked out the 7 year tapering relief PET (potentially exempt transfer) rules it seems. However you also said that you may wish to retain a degree of interest in the gifts by being a second signatory on their accounts. There are rules about things called 'Gifts with reservation' which you may wish to investigate. Basically for the PET to be effective the gift must be an outrightgift, a 'gift with reservation' is not an outright gift and as such the PET would likely fail and be added back into your estate on death and remain potentially at risk of IHT (I say potentially because I know not what your total estate is).

Just thought I'd mention it , although I see IHT is not your prime concern.

 

[marinyork]

You're allowed to give someone upto £3000 in a tax year as a gift before tax kicks in. Uni lasts over a few years. Pay £3000 one tax year, £3000 another tax year and so on...

 

[Willow]

You're allowed to give someone upto £3000 in a tax year as a gift before tax kicks in. Uni lasts over a few years. Pay £3000 one tax year, £3000 another tax year and so on...

it's £3k in total isn't it not £3k each just to clarify?

 

[marinyork]

£3k to each person, per tax year. I believe this is the case as my grandparents did this arrangement for university/college for all of my cousins except me and they are about the same age.

So if one had a daughter in lower 6th one could give her 3000 that tax year and 3000 for the other three years of university. The high rate of interest on student loans kicks in from day 1 so it's not a particularly silly thing to do as it could save you over a grand in interest.