How To Stop Children Knowing About Their Savings?

Keeping Children in the Dark, Parental Settlements of Bank Accounts + £100 Parental Settlement Limit

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Without my prior knowledge, parents have so far kept their minor children in the dark about the children's savings. It appears the minor children have had very frequent cash gifts from affluent grandparents made into their bank accounts without their knowledge. As the children approached the age of majority the parents deftly switched the children's accounts into segregated accounts in the mother's name so that the children would still be unaware of the funds until some time later into adulthood (when sense will hopefully prevail).

Bank interest has been paid on the cash funds in the name of the mother. I suspect most of the funds are grandparent funds, but there is a strong chance some of the bank savings might originate from periodic parental deposits. Total interest in the name of the mother is well over £1,000. 

Goodness knows how I am going to apportion the interest in each of the accounts into "grandparent interest" versus "parents interest" before applying the £100 parental settlement limit, at least until age 18.

In general, well before children reach the age of majority the banks/building societies address correspondence to minor children. By moving the children's funds nimbly into accounts in the mother's name the children are blissfully unaware of their nice not-so-little nest-eggs. 

Apart from the parental settlement issue mentioned above, the other two issues are that:

1) all of the interest reported to HMRC will be in the mother's name without any reference to her children, so if some of the interest is not disclosed to HMRC on the mother's tax return there is a very good chance of HMRC enquiry into the discrepancy, and

2) is there a better way of the mother holding children's bank cash deposits well into adulthood without the adult children knowing about it.

In all of my prior experience of this sort of thing the children have always grabbed the passbooks at age 18 and either invested in "rust or makeup".

 

 

Replies (35)

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By ireallyshouldknowthisbut
10th Oct 2023 08:50

If you want control from the "grown ups", you need a proper trust.

otherwise its the kids cash at 18.

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paddle steamer
By DJKL
10th Oct 2023 10:15

If you want hidden money from kids National Savings children's bonds used to be pretty discrete as they ran for a few years so little pesky correspondence.

No idea if they still operate in similar manner as ours got the cash when they went to university, so long drunk.

Have parents considered some shares in say investment trusts if long time until kids will receive the cash, we also held shares for ours (Mine started getting cash from a Grandparent, a Great Grandparent and a Great Uncle as soon as they arrived and right through their childhood , 18 years of investment is a long time period to solely stay in cash)

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By David Ex
10th Oct 2023 11:11

penelope pitstop wrote:

How To Stop Children Knowing About Their Savings?

I’d steer clear of veering towards giving investment and legal advice.

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Replying to David Ex:
By penelope pitstop
10th Oct 2023 16:20

Easier said than done!

Not so sure that bank deposits are regulated investments, and clients are always pushy to learn my slant on legal and investment stuff.

As I ALWAYS say to my clients, "It's illegal for me to give you any financial advice...", to which they always retort - "Yes, okay, but what do YOU think about it?"

It's very awkward being an accountant!

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Replying to penelope pitstop:
paddle steamer
By DJKL
10th Oct 2023 16:43

Just do it in the round.

"Given your possible investment time horizons here perhaps a chat with an IFA or wealth manager would not go amiss"

I rarely even give friends share ideas (well one, but he is pragmatic re gains/losses) as it is a very good way to spoil a friendship, however I think alerting clients to investing taking into account their available investment time parameters is fairly safe and sensible.

(A bank deposit over 10 years being right now a guaranteed loss vis a vis inflation, as I once tried to explain to the wife of my employer, who insisted that was where she wanted her SIPP invested for the long term)

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Replying to penelope pitstop:
paddle steamer
By DJKL
10th Oct 2023 16:43

.

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By More unearned luck
10th Oct 2023 18:59

What do you mean by 'segregated'? Why do you then have an apportionment problem?

You may wish to consider making a ML report:stealing is stealing even from your own kith and kin.

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Replying to More unearned luck:
By penelope pitstop
11th Oct 2023 02:48

Ok then. Mum holds, say, 10 bank accounts. 6 of the accounts are purely mum's cash. That's the easy part.
The other four accounts look to be something like:
A/c 7 - Predominantly grandparent-contributed cash with the odd amount of parent cash for minor child #1
A/c 8 -Predominantly grandparent-provided cash with the odd amount of parent cash for minor child #2
A/c 9 - Predominantly parent-contributed cash for minor child #1
A/c 10 - Predominantly parent-contributed cash for minor child #2

If total interest is around £1,300, I suspect some or all of the excess over £1,000 is from probably grandparent-derived gifts. But the position is muddied by failure of parent to segregate grandparent cash from parent-derived gifts. And HMRC will be advised that mother's 2022/23 interest is around £1,300. I can just see the time-wasting correspondence with HMRC this is going to start.

Because the kids are around 15 and 17 their cash has been building up since when they were born. The mother dealt with the kids' R40s since birth but mother only draws the interest conundrum to my attention when all of the 2022/23 interest arises on the accounts she has now opened in her name.

Does that make sense. It didn't really matter for 2021/22 and before because interest rate returns were very poor and below £1,000. But because interest rates have taken off, 2022/23 interest in mother's named accounts is in excess of £1,000, so the only way out is to consider the £100 parental exemption figures.

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Replying to penelope pitstop:
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By Tax Dragon
11th Oct 2023 04:42

So far no naughtiness has been committed. And the time-wasting correspondence therefore ends when the older child hits 18 and is given the contents of accounts 7 and 9. As that's only a year away, and it's HMRC you're talking about, that's only going to be one letter.

The tax at stake here is peanuts. Don't spend hours and hours. Just apportion the interest on a sensible basis - grandparental contribution over balance times interest on the child, balance on mum type thing. (Assuming there's only been money going in, not coming out.)

Two questions: why did you start this thread with your accusations of planned naughtiness? R40s to recover what tax?

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Replying to Tax Dragon:
By penelope pitstop
11th Oct 2023 15:12

It's all about curves (interest curves, that is).

Interest returns on capital are curving upwards, as you will have realised.

2021/22 interest returns £100
2022/23 interest returns £1,300
2023/23 interest returns £20,000 (maybe)

The R40s are done because grandparents set up discretionary trusts years ago for the grandchildren etc. with R185s completed each year by the trustees for the annual distributions.

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Replying to penelope pitstop:
paddle steamer
By DJKL
11th Oct 2023 15:19

Yes, but came back in slightly when the B of E did not raise at last meeting, we have a lot on term deposits so I get sent our bank's rates sheet every time they change, on 26th September their rates dropped ever so slightly, 250k-999k 1 month went from 3.70 to 3.60, 3 month dropped 4.30 to 4.18, six month 4.75 to 4.60.

Of course may be a temp pause, who knows.

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Replying to penelope pitstop:
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By Tax Dragon
11th Oct 2023 15:38

Is this you and your children? You seem well-informed of what's going on in mum's head - now not only wanting the children not to know about the capital but also not the interest (if that's what you're hinting at).

Maybe she's (you're) all wrong about the youngsters though. Maybe if there is good income to be had, they'd see the value of not spending the capital. Has mum (have you) told them the story of the chicken that lays eggs of gold?

Legal advice, investment advice, family counselling and now psychologist and raconteur. It's a big job being an accountant!

(PS mind that bus.)

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Replying to Tax Dragon:
paddle steamer
By DJKL
11th Oct 2023 15:49

Child Psychologist as well.

My experience of children is that they need to get to a certain age (upper 20s) before the art of saving is seriously acquired.

Catch is they do this saving by staying with Mum and Dad and moaning about the standard of catering we provide.

They also abandon a lot of things with Mum and Dad such that these parents end up renting a shipping container to store all the leftovers- in the case of our last one apparently she will not have room when she buys her own place for her never ending cuddly animals/beanies collection but instead we will need to continue to provide a room in which they can live, forever.

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Replying to Tax Dragon:
By penelope pitstop
11th Oct 2023 15:58

Ditto

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Replying to Tax Dragon:
By penelope pitstop
11th Oct 2023 15:58

Ha ha ha ha ha. That's really tickled me.

No, with my own kids, I just tell them that if they touch their passbooks on the mantelpiece I'll shoot their socks off - such obedient children!

In the case in question, my client's accounts are immaculate. She has presented all of the bank account details with copious notes of what she's been up to. Nothing has been hidden (from me, that is).

;-)

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Replying to penelope pitstop:
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By More unearned luck
11th Oct 2023 17:59

Immaculate and muddied?

How do you know nothing has been hidden from you? You know that your client deceives her children so why not her accountant too!

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Replying to More unearned luck:
By penelope pitstop
11th Oct 2023 19:23

Don't think she's deceived her children. She's just doing what most mothers have been doing for thousands of years - expressing her natural maternal instincts to protect her lovable offspring from reckless spending of banked deposits.

At the end of the day her children are in want of nothing. The carefully nurtured bank deposits will somehow eventually end up in the coffers of her children. As to when and how that will happen has nothing to do with me.

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Replying to penelope pitstop:
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By Tax Dragon
11th Oct 2023 19:48

Can a trust be bare if the beneficiary doesn't know about it?

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By Tax Dragon
10th Oct 2023 19:56

Legal and investment advice... and family counselling? Is it good to have secrets of this kind?

If children work, does mum expect them simply to file incorrect tax returns?

What happens if mum falls under the number 47 tomorrow?

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Replying to Tax Dragon:
paddle steamer
By DJKL
11th Oct 2023 10:22

Given it does not look like accounts are labelled as held for Child A,B or C within the account names, when the 47 hurtles around the corner and kills Mum I suspect all accounts will get included in Mum's executry which is the point when the inadvertent theft likely happens.

We are not told if there is a dad to inherit or if he is in the know or whether the funds will tumble down to kids or whether they will be held in trust for them until they reach a suitable age (perhaps sans 40%), mine would have had to wait until 25. (they are now both well past that age )

The words of Walt come to mind here,

"‘Oh what a tangled web we weave
When first we practice to deceive,"

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By Tomazaan
11th Oct 2023 12:09

A couple of non-tax points:

Mother may be deceiving the bank in that she may have indicated that she is the beneficial owner of the money. Many banks require this for personal accounts because the banks don't want to deal with trust accounts of any kind.

If the bare trusts continue after the children reach 18, the trusts will need to be registered with the TRS. This will help with issues following a bad encounter with the No 47 as there will then be proof that Mother did not believe that the money was hers.

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Replying to Tomazaan:
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By More unearned luck
11th Oct 2023 18:21

The TRS is for express trusts. The money 'resting' in Mum's account is not being held on express trust. Indeed, the only expression Mum has made is to Penny and after the fact too. I'm not sure if it is being held on trust: People convicted of fraud are not also done for failing to record on TRS that they are holding their victims' money on bare trust for them.

If the account was held on bare trust in would be marked as 'A for B'.

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Replying to More unearned luck:
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By Tax Dragon
12th Oct 2023 06:01

"Indeed, the only expression Mum has made is to Penny and after the fact too." Well it would be after the fact. And a trust is expressed by the settlor, not the trustee - here there seem to be at least three settlors (and, if so, potentially more than one trust, at least one of which is clearly express).

Penny hasn't actually said what she's doing. Just mum's tax return? Obviously giving advice - 'investment' or otherwise - to the trustee of a trust requires a whole bunch of AML work etc that isn't needed if you're just doing mum's tax return.

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Replying to Tax Dragon:
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By More unearned luck
15th Oct 2023 20:42

I wasn't suggesting that declarations of trust are made by anyone other than by settlors. My point was that there is no express trust. The children's money seems to have been theirs absolutely - we are told it was formerly in 'their' bank accounts and that Mum moved it 'deftly' into her bank accounts. This is no more an express trust than when criminals steal money from their victims' bank accounts.

Indeed I think that Mum is a criminal and that her motive, however laudable, doesn't excuse her criminal conduct. Just because someone has more money than sense it doesn't justify someone else 'looking after' their money without their consent or knowledge.

Although the children don't seem very good at monitoring their accounts - we are told that they don't know what was paid in by grandparents nor that the money has now gone, so perhaps Mum's concern is justified or that she realised these thefts would be like taking candy from a baby.

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By Dogracer
11th Oct 2023 16:51

Use Premium Bonds might win a £1million and prize rate is good

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Replying to Dogracer:
paddle steamer
By DJKL
12th Oct 2023 11:40

Have they improved the win ratio, I thought they some time back lowered it?

My Dad and Grandfather both held max holdings at one time and both won regularly (my Dad liked the fact no tax)

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stonks
By WinterDragon
12th Oct 2023 12:21

Sounds like your client is trying to have their cake and eat it. I enjoyed this video from a chartered wealth manager looking at the options for investing for children/grandchildren - specifically with regard to control over the funds vs the tax efficiency/cost.

https://www.youtube.com/watch?v=FYzfGeeOJfs

It sounds like this whole scheme is financial planning without a plan.

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Replying to WinterDragon:
By penelope pitstop
20th Oct 2023 19:43

Not too bad a video. Well worth a watch.

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By CherryPicker
20th Oct 2023 19:30

1. Premium Bonds is one way: £50k and then cash in before they are 16.
Winings are paid to parents! Are they tax free?! ;)

2. Natiowide had accounts in which they dealt with parents until 18. Parents could even close accounts and be paid funds in to their own accounts.

3. Cynergy Bank (Bank of Cyprus) were "useless" or "good" as they paid funds back in to the account that opened it. Eg grand-parents! Not sure if they changed now.

4. Pensions. £3,600 gross per year is allowed if they do not earn anything (actually pay £2,880). Can start when they are born.

5. LISA etc, so they can only get funds when they buy a house or are old.

6. Then go for 5 or 7 year fixed rate bonds, so they get money at 23 or 25 and have hopefully graduated.

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Replying to CherryPicker:
By penelope pitstop
20th Oct 2023 19:42

A most excellent response.
Thanks

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Replying to penelope pitstop:
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By CherryPicker
20th Oct 2023 20:11

I once thought the only way Labour would be elected was to scrap all student loan debt and introduce a graduate tax. Now Tories have self-destructed, I doubt this will ever happen.

Another option is to explain to children the money is from grandparents for their education and pay university fees (if you think they will be "high" earners).
Else, save it for their mortgage deposits.

A word of warning, just because children are darlings and thought to be trustworthy and sensible, this can change any time! Be cautious. Hiding is good!

Want to play the system for universites? Well, contribute 100% of salary to pension so your income is less than £16k a year. This makes you a poor family in the eyes of many universities. Savings are not considered. Many universities will provide a free laptop and busrsay of a few thousand pounds a year. Do this for the first year and univerities (and Student Loans) use the same data for 3 years.

Perfectly legal. Very naughty though!

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Replying to CherryPicker:
paddle steamer
By DJKL
21st Oct 2023 10:32

SIPP pension contributions did not reduce our income for SAAs when my son's student loans were means tested based on our income.

I argued with them that it was somewhat unfair compared with those who had their contributions taken into account via payroll and were thereby assessed on the net figure but to no avail.

Possibly would have made little difference anyway as he got minimum loan of circa £950 for the first two years before they dropped means testing and gave everyone circa £4,500 loan each year.

On plus side he fully repaid his student loans ,of circa £11,000 ,in his 20s, whereas his younger sister with her masters has debts nearer £24,000.

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Replying to DJKL:
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By CherryPicker
21st Oct 2023 10:45

Was this a long time ago or less than 4 years ago?

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Replying to DJKL:
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By CherryPicker
21st Oct 2023 12:26

Current rules: https://www.gov.uk/government/publications/student-finance-how-youre-ass...

We’ll work out your parents’ residual income (which includes the income of your parent’s partner, if they have one) by taking their gross income (before tax and National Insurance) and taking off allowances for the following:

payments into private pension schemes, additional voluntary contributions and employment related costs...................

I think SIPPS is fine now. May be they decided your complaint was fair.

Pity the government still imposes a effective tax on marriage with associated companies!

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Replying to CherryPicker:
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By Tomazaan
28th Oct 2023 11:15

Re student finance: surely what we have now is a limited graduate tax? You pay extra tax for a set period (30 or 40 years depending on when you took out your loan) and for a "fixed" amount (the full amount payable depends the interest applied to the "loan"). So if you are a low earner (eg my daughter) you pay nothing or very little. If you are a high earner (eg my son) you pay an extra tax on your income until the fixed amount is reduced to zero.
This seems to me to be fair: a high earner will pay more but not an excessive amount more and the amount that the high earner pays is related to the amount that they have spent on their degree.
A full graduate tax is very unfair: the high earner will pay more throughout their lives and the amount that they pay will bear no relation to the cost of their degree.

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