Grandparent gift - tax implications

Implications of holding grandparent's gift in parent's name

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My client's mother wishes to gift a lump sum of money to my client's children (her grandchildren) and is considering a range of investment options.

If the money is placed in a cash savings account in the child's name, and earns interest over £100, I know that this is not taxable on the parent (unlike if the gift were to come directly from the parent).

However, what are the tax implications if the money is held in a bank account in the parent's name? I assume any interest would form part of the parent's taxable income, regardless of where the money came from in the first place? Just want to get my facts straight and ensure I haven't missed anything!

Replies (7)

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By paul.benny
18th Mar 2024 13:39

The question I think may be being asked is how to give money to grandchildren but to ensure keep their hands off it until they're adult.

Have you considered Junior ISA? The best cash versions pay >5% tax free and funds are locked in until age 18 - although I believe they must permit transfers out.

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By sparkler
18th Mar 2024 13:50

Thanks for your reply - the question is specifically regarding the interest. My client has looked at various children's savings accounts and ISAs, but the better paying ones have a very limited balance - well below the amount that the grandparent wishes to give the grandchildren. Even the Junior ISA has an investment limit of £9k per year. So the parents are considering putting the money in an account in their own names (as the balance limit is likely to be higher), but want to know what the tax implications are for the interest earned.

I am not a financial advisor so am not planning to advise my clients on what investments or accounts to choose, but just want to make sure I'm not missing anything with regard to their specific question on how the interest is taxed for an account in their name which comprises solely a grandparent's gift to their child, being invested on the child's behalf.

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Replying to sparkler:
By David Ex
18th Mar 2024 16:53

sparkler wrote:

So the parents are considering putting the money in an account in their own names (as the balance limit is likely to be higher), but want to know what the tax implications are for the interest earned.

You’ll probably find that’s a breach of the terms of any bank/ building society account - as well as raising money laundering issues? Suspect you’d have a hard time convincing HMRC that the interest wasn’t the parents’.

If the amounts are so eye-watering, a deposit account might not be the best place for the money - especially if it’s a long-term arrangement. I suspect an IFA would be the way to go for advice.

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Replying to David Ex:
paddle steamer
18th Mar 2024 17:24

No idea what happens these days but back in the Dark Ages my wife had accounts in trust for the kids at her branch, the (then) passbooks clearly stated funds held in trust, so HAL In Trust for NEL or PGKL on each book.

The kids Great Grandfather, Great, Great Uncle and Grandmother were forever giving us cash for the kids (A fiver or so from each of them for each kid pretty much every weekend ) and we plonked the money into the RBOS accounts. Not that the sums ever got that big as we tended to buy them National Savings Children's Bonds every time they got over £100 (Not sure these still exist) We then gave the kids the cash when they went away to Uni and no doubt they drank the bulk of it fairly quickly.

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Replying to sparkler:
By FactChecker
18th Mar 2024 17:40

In order to "make sure I'm not missing anything", you really do need to suggest they talk to an IFA (or do their own research) ... basically anything other than make a comment yourself. However many caveats you wrap around a comment, your clients will take it to have been 'advice' (particularly if a few years downstream there's perceived room to complain - due to legislative change or whatever).

My (non-advisory) opinion is that the source of the money is irrelevant (in this context) as is the concept 'on behalf of' (without formal trust wrapper).
Banks haven't been keen for many a year on any kind of 'indirect ownership' of an account (blame AML and banking laziness), so your idea might not even be feasible let alone deliver the required outcome.

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By AdrianDurham
20th Mar 2024 09:39

Could consider the grantparents putting the money into bare trust for the children with the parents as trustees. There would then be a legal document (trust deed) showing that the funds are being held by the parents on behalf of the children. Bare trust would need registering as a non taxable trust with HMRC under the TRS though.

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Ivor Windybottom
By Ivor Windybottom
20th Mar 2024 11:24

I have previously opened a bank savings account for my little nipper and the account was created in the child's name, but everything was addressed to Mr X for Master X. Surely that is all that is required?
The account belongs to the minor child (i.e. beneficial ownership), but legally they need someone (e.g. parent) to act as their trustee. The kid automatically gets full operation of the account when they reach 18, without any change in the account.

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