Question
My wife has been asked by her step-uncle to put £20,000 into her bank account and possibly £20,000 into our 3 year old daughter's bank account. He has recently been diagnosed with cancer but I'm not sure if that is the reasoning behind him asking us. So I was wondering what are the implications for us. Does it effect out tax,child benefit or childs nursery allowance. Plus what would happen if he died?Answer
It all depends on your step-uncle's motivation for wanting to pass money to your wife and daughter.
If he's intending the money to be an outright gift then it will belong to your wife and daughter, so he'll have no right to ask for it back, nor will his estate be able to reclaim the money should he die.
Your wife and daughter won't have to pay any tax on the money received, although any interest it earns from sitting in their bank accounts will obviously be taxable as usual (but very unlikely your daughter will be a tax payer - ensure you complete form R85 so that interest is paid without deduction of tax).
Child benefit will be unaffected, although from 7 January 2013 if either parent has annual income above £50,000 it will reduce by 1% for every £100 over that limit. All 3 and 4 year olds are entitled to 15 hours of free nursery care for 38 weeks of the year, so this would be unaffected. Any other entitlements you get may be affected if they depend on your wife's income, she'd receive interest of around £600 a year (before tax) on £20,000 if she puts it in an account paying 3%.
However, if your step-uncle is passing the money to your wife and daughter with a view to wanting it back in future the situation could get messy. Unless he puts something in writing to state the money must be repaid in future your wife and daughter would still likely have claim to the cash, even if he dies. But perhaps he's trying to evade paying tax on the interest earned or hide it for some reason. Neither is a situation your family would really want to be involved in, so I'd suggest poltely declining his request. It could also save a lot of potential family politics and arguments if he has other relatives taking an interest in his financial affairs.
My wife has been asked by her step-uncle to put £20,000 into her bank account and possibly £20,000 into our 3 year old daughter's bank account. He has recently been diagnosed with cancer but I'm not sure if that is the reasoning behind him asking us. So I was wondering what are the implications for us. Does it effect out tax,child benefit or childs nursery allowance. Plus what would happen if he died?Answer
It all depends on your step-uncle's motivation for wanting to pass money to your wife and daughter.
If he's intending the money to be an outright gift then it will belong to your wife and daughter, so he'll have no right to ask for it back, nor will his estate be able to reclaim the money should he die.
Your wife and daughter won't have to pay any tax on the money received, although any interest it earns from sitting in their bank accounts will obviously be taxable as usual (but very unlikely your daughter will be a tax payer - ensure you complete form R85 so that interest is paid without deduction of tax).
Child benefit will be unaffected, although from 7 January 2013 if either parent has annual income above £50,000 it will reduce by 1% for every £100 over that limit. All 3 and 4 year olds are entitled to 15 hours of free nursery care for 38 weeks of the year, so this would be unaffected. Any other entitlements you get may be affected if they depend on your wife's income, she'd receive interest of around £600 a year (before tax) on £20,000 if she puts it in an account paying 3%.
However, if your step-uncle is passing the money to your wife and daughter with a view to wanting it back in future the situation could get messy. Unless he puts something in writing to state the money must be repaid in future your wife and daughter would still likely have claim to the cash, even if he dies. But perhaps he's trying to evade paying tax on the interest earned or hide it for some reason. Neither is a situation your family would really want to be involved in, so I'd suggest poltely declining his request. It could also save a lot of potential family politics and arguments if he has other relatives taking an interest in his financial affairs.
Read this Q and A at http://www.candidmoney.com/questions/question722.aspx
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