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Where Taxpayers and Advisers Meet

Have I been stupid

adam999
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby adam999 » Thu Apr 21, 2005 2:33 pm

For some time now I have been transferring my savings into a high interest bank account in my brother's name. My brother is a student, though now over 21, and thus has applied for gross interest to be paid on these accounts. He recently received a sizeable amount in interest payments (approx £4200).

I have just received a demand from the revenue for details on interest income I have earned in tax year 2005. This is after I had completed a self assessment (not sure which year it was for but I remember posting it in either Jan or Sept last year) and got a refund of £112 and a letter stating that I will not be asked to fill a self assessment out again.

I am employed and I pay most of my tax through PAYE, I don't have any investments that realise me anygain so in my self assessment I didn't have any additional income to declare.

I am confused by the authority recent demand for info on interest income earned !!! Am I allowed to transfer my regular savings into my brother's account to make use of his personal allowance ? I occasionally take lump sums out of his account eg. when I bought a car etc.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Thu Apr 21, 2005 11:08 pm

No, you cannot utilise your brother's unused Personal Allowances.

You need to remedy the situation asap, as the IR may suspect you of fraud.

Was the relevant interest received after deduction of tax, or Gross?

Was it included in your SA Returns?

adam999
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby adam999 » Fri Apr 22, 2005 3:11 am

The interest was received before tax as he is a student.

It was not included in my SA returns as the accounts are in his name.

Has the IR has got details of the interest paid on the account and decided to ask me how much interest I got paid again, to see if I was lying ?

Technically speaking the interest was paid to my brother, although the source of money in the account could be traced back to me, as he is a student and he would not have that kind of cash.

How do you suggest I rectify ? Do I declare the interest to the revenue, even though the money is in his name ? or do I go back to the bank and get them to tax the interest paid.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Fri Apr 22, 2005 3:28 am

Just because the money is in his name does not make it his money.

He is a trustee of your money, based on the data provided. I assume your brother does not expect to be able to keep the money?

adam999
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby adam999 » Fri Apr 22, 2005 5:45 am

No, he doesn't expect to keep the money. I suppose he is a trustee.

How do you suggest I rectify ? Should I declare it as interest paid to me in the P810 that I have been sent ?

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Fri Apr 22, 2005 8:11 am

It would seem that you have underpaid tax for previous year(s).

You can still rectify your Return for 2003-04, if you completed one.

Have you calculated the underpayment yet?

Instinctive
Posts: 1797
Joined: Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Fri Apr 22, 2005 12:05 pm

There are mostly two sides to a coin. The money couldhave been given to the brother as an interest-free loan to be repaid as and when required. If the brother has chosen to invest the monies in a bank account in his own name, receives the interest in his own right, and keeps the interest for his own use, surely this is his income and he would be taxed on this according to his own personal circumstances.

I don't consider that you have done anything wrong. It is quite common for husbands to keep rental properties, saving accounts and shares in wife's account to save tax. So why should this be any different if the money is given to a brother.

Ramnik

adam999
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby adam999 » Sat Apr 23, 2005 2:20 am

Ramnik,

I think you have just eloquently explained the logic that I had in my mind when I decided to channel my money down that route.

I was just curious as to whether there are existing IR rules that would restrict me from doing this. Based on your explanation I don't see anything wrong with it.

Thanks man.

dd

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Sun Apr 24, 2005 1:36 am

Ramnik,

"The money couldhave been given to the brother as an interest-free loan to be repaid as and when required."

"So why should this be any different if the money is given to a brother."

So which is it - interest free loan or gift?

johnfkavanagh
Posts: 335
Joined: Wed Aug 06, 2008 3:08 pm

Postby johnfkavanagh » Tue Apr 26, 2005 9:48 am

Ramnik and Kingmaker

I know that this sort of thing happens all the time and the Revenue rarely gets to find out about it but it seems to me that, strictly, the settlement provisions apply in these circumstances whether there is a gift or a loan.

Firstly, it seems to me that there is an arrangement or agreement within section 620(1) ITTOIA 2005. In my opinion, there is certainly the element of bounty (which needs to be present before section 620 can apply) whichever way you look at it; either because there is a gift or because there is an interest-free loan. Accordingly, I would suggest that there is a settlement for the purposes of section 620.

Secondly, there is also clearly an understanding that the brother will return the funds in due course, whether there is a loan or gift, so it seems to me that Adam has retained an interest within the meaning of section 625(1) ITTOIA 2005:

"625 Settlor's retained interest

(1) A settlor is treated for the purposes of section 624 as having an interest in property if there are any circumstances in which the property or any related property-

(a) is payable to the settlor or the settlor's spouse,
(b) is applicable for the benefit of the settlor or the settlor's spouse, or
(c) will, or may, become so payable or applicable."

None of the exemptions apply with the consequence that the income arising under the settlement is treated as that of the settlor, i.e. Adam.

I would be interested in alternative analyses!

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663
John Kavanagh CTA ATT FRSA
Director, UK Tax Consulting Limited


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