Gift to children or parents income?

[abash]

We would be grateful for you advice and opinions.

We as parents would like to gift our three children ( all under 12 years old) with £10,000 each where they would hold the money in a savings account earning 3% gross interest pa. i.e £300 each. They should not have to pay any tax as the income would be below their personal allowance.

How can you distinguish this situation to the taxman as opposed to the scenario where the interest earned would be treated as the parents income, where the child can earn upto £100 interest (£200 for both parents) without being taxable to the parents and above this ( in this case £900 (£300x3)) would be all included as the parents income?

Thank you

[jpcentral]

You can't. This is exactly the scenario which HMRC intend to tax.

Why not consider an investment where there is only capital growth and no interest/dividends?

[section 44]

Have you looked at junior ISAs?

[silvermum]

Halifax Junior ISA pays 4% (if a parent also holds an ISA with them) - £4080 per child in there
Then up to £3300 from Parent 1 in the savings account paying 3% (so interest is below £100)
And up to £3300 from Parent 2 in the savings account paying 3% (so interest is below £100)

Presumably at the end of the year interest from the savings account should be transferred into next year's ISA (to avoid interest being >£100)

In practical terms, how are these things ever monitored by HMRC? Personally, I used to keep a spreadsheet with where larger sums of birthday /Christmas money came from (e.g. grandparents) so it was not deemed to be all from parents.

[abash]

Thank you guys for your replies.

What is still a little confusing is that I thought that any amount can be gifted to your children but if you pass away within 7 years then IHT is due. So as long as this does not happen the money and the interest earned should be the child's and treated as their income?

Please clarify.

regards

[bd6759]

The capital (the amount in the bank) will belong to the child. However, the legislation treats the income derived from the account as that of the settlor (you).

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4300.htm

http://www.legislation.gov.uk/ukpga/2005/5/section/629