Tax on Interest Received

Tax on Interest Received

Didn't find your answer?

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?

Replies (13)

Please login or register to join the discussion.

avatar
By Peter Kilvington
06th May 2014 15:02

Over £100

Dont know if this your answer but I remember this from exams

http://www.hmrc.gov.uk/manuals/saimmanual/saim2430.htm

Thanks (0)
avatar
By Swampy
06th May 2014 15:14

That is the case for children but I thought I read somewhere a couple of years ago that it was different for grandchildren but I may be dreaming again! 

Thanks (0)
avatar
By Rammstein
06th May 2014 15:18

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. 

Thanks (0)
By Steve Kesby
06th May 2014 17:04

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.

Thanks (0)
avatar
By Swampy
06th May 2014 16:01

The accounts are in the name of the grandchildren and my client.The money that was used has never been repaid although he is in a position to do this if it would help his cause .His argument is that he used this account  in error a few times and since 2009 has not been touched and he is treating it as not his money, but his grandchildren.

Thanks (0)
avatar
By Peter Kilvington
06th May 2014 16:36

Sorry missed the grand out

Sorry misread missed the grand out of the grand children bit.

Thanks (0)
avatar
By justsotax
06th May 2014 16:48

you haven't

said but exactly how much money did he use?

Thanks (0)
avatar
By Swampy
06th May 2014 16:59

Approx 20k 

Approx 20k 

Thanks (0)
avatar
By justsotax
06th May 2014 17:05

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?

Thanks (0)
avatar
By King_Maker
06th May 2014 17:11

I would have thought the grandfather would rather pay the tax, interest and penalties than go to jail for theft?

Thanks (0)
avatar
By pawncob
06th May 2014 17:29

What theft?

The accounts are joint. Any party can draw on them and any party must make a return of the income received.

Thanks (0)
avatar
By King_Maker
06th May 2014 17:43

Being an account signatory is not conclusive of a beneficial interest.

Thanks (0)
avatar
By pawncob
06th May 2014 17:57

But this statement is

The accounts are in the name of the grandchildren and my client.

Thanks (0)