Could somebody enlighten me on the following as I am currently in dispute with HMRC.I have a client who set up 2 bank accounts back in 2006 for each of his grandchildren and transferred approx.100k to both accounts and he is the trustee on both accounts.This money then generated gross interest as it was purely for the use of his grandchildren when they became of age. However a small amount of the money was used by him personally in the next 2 tax years(only maybe 4 or 5 small transactions) and then since approx 2009 the money has not been touched.HMRC are trying to say that both of these accounts are being used for his benefit and trying to claim back the tax on all years from 2006/07 right up to date.My client has no problem in the 2 years up to 2009 that he used some of this for his own benefit all be it by mistake and is prepared to pay the tax up to 2009 but from that date feels that surely that gross interest should be allowed.Anyone have any answers or case law on this?
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Genuine Gift
I thought that if a grandparent gave the money outright to a grandchild, it would be taxed on the grandchild. Your problem is, if it was an outright gift, how could he use some of the money personally?
'This money then generated gross interest as it was purely for the use of his grandchildren when they became of age' is where he falls over because it was never purely for the grandchildrens use.
Bingham
What has been done to distinguish it from his own money? Are the accounts in the names of the grandchildren? Has he repaid the money that he "borrowed"? Whilst differing facts, see the Bingham case.
If, at any time after the purported gift, it still looked and acted like his money, a tribunal's likely to conclude that it remained his money.
the amount involved
probably explains why the Revenue have taken the approach they have. I think at best your client would be hard pushed to explain away withdrawals of 20k as an error.... has he convinced you? or is his 'argument' just a suggested route of defence rather than what actually happened?
I would have thought the grandfather would rather pay the tax, interest and penalties than go to jail for theft?
What theft?
The accounts are joint. Any party can draw on them and any party must make a return of the income received.