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Can a child under 16 lend to a parent?

Grandparent is willing to gift money to grandchild but can that child on-lend that money to parent?

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My parents were considering gifting money to my married sister but are concerned about the fact that if she divorced, the ex husband would take half. As an alternative they are thinking of gifting the money to my sister’s child (the gifter’s grandchild) so if my sister divorced the child would keep that money and the husband wouldn’t have any claim on it. That money would then be lent from the child to my sister (0%) and repaid into the child’s bank over time. The purpose of the loan is to buy a house registered in sister’s name. We understand the IHT consequences of grandparent’s gift (we think!) but key questions are (1) whether it is possible for a child under 16 to make a loan to a parent and (2) is it correct that the husband would not have any rights to that child’s cash (or loan receivable) in case of divorce. Many thanks

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24th Nov 2018 09:18

I know they (you) will want to do it without a good document trail. But on this occasion that would be unwise. Best idea to protect the money would be to have the documents drawn up by a solicitor. Said solicitor would be best placed to advise on whether it can be done in the first place.

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24th Nov 2018 09:22

There are probably better ways to do this depending on what they intend to use the money for.

What happens when the child works out they are legally entitled to that money and request it to be repaid?

As Tax Dragon says, see a solicitor and keep all options on the table!

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24th Nov 2018 10:09

This is a legal question and you need a solicitor, not an accountant.

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By Matrix
24th Nov 2018 11:11

Just a few thoughts.

If the couple will also get a mortgage then this loan would affect their borrowing.

How would they pay it back to the child?

If you get advice that it does work, how will she explain all the transactions to her husband? I don't think it will be great for family relationships.

I would recommend to your parents to seek legal advice, if they say what they are trying to achieve then there may be some solutions. I would keep out of it.

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By DJKL
24th Nov 2018 17:53

Asides from legal issues with how done, if funds came back to granddaughter (in whole or in part) at say 18,19,20,21,22,23 etc do grandparents really think it is a good idea grandaughter has access to what is obviously a reasonably significant fund at these ages?

What if granddaughter later gets married , what then if that goes pear shaped?

My children may get some funds from us in their twenties but the only way they will ever get anything significant is if my wife and I are both dead and even then only my son currently vests, my daughter has to wait until she also reaches 25.

Ignoring tax and daughter's marriage, do the grandparents really think an outright gift to granddaughter before 16 is a good idea.?

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to DJKL
24th Nov 2018 19:40

Logically, "etc" in your sequence can only have meant 24, since you think 25 old enough to inherit.

Just saying. 24 would've taken less typing (for both of us :)).

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By DJKL
to Tax Dragon
25th Nov 2018 12:52

Actually I am not convinced at 25, we may have 25 in our wills, written a considerable number of years ago, but now the children are about that age I keep getting tempted into thinking say 40 or 50 would be even better re vesting capital!!!!

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26th Nov 2018 10:24

Surely GP can just open an new bank account with the funds and do a DoT over that, so there is no risk here? If they are really concerned they can do a DT (up to £331k so no IHT ) rather than a bare trust.

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By Kushty5
01st Dec 2018 10:42

Thank you all for your responses, much appreciated. Speaking to a solicitor makes sense.

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