Tuesday 10 July 2012

Tax on gifts made to children?

Question
I wish to give my two children a sum of money, I am a non tax payer what are the ramifications on this action?Answer
Gifts are not directly taxable (as in theory the money has already been taxed), either in yours or your children's hands. However, there are potential issues to be aware of.

Firstly, when parents gift money to an unmarried child aged under 18 the parents will be subject to income tax on the interest if it exceeds £100 per year per parent per child. This tax rule is simply designed to stop wealthy taxpaying parents using their kids to avoid paying tax on savings. As you're a non-taxpayer anyway this rule shouldn't affect you - and of course your children might be 18 or over.

The other key issue is inheritance tax. If someone makes a gift and lives for at least seven further years then that money will fall outside of their estate - i.e. it won't potentially be taxed on their death. If they die within seven years of making the gift then it will still be included, either in part or full, within their estate. This would be a consideration if your motivation behind making the gifts is to avoid inheritance tax, otherwise I wouldn't worry.

Of course, your children would have to pay tax as usual on interest earned from the money if they put it in a taxable savings account etc, but this won't affect your tax affairs unless the £100 rule mentioned above comes in to play.

Read this Q and A at http://www.candidmoney.com/questions/question596.aspx

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