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Where Taxpayers and Advisers Meet

gifts from grandparents and trusts

taxnovice1
Posts:3
Joined:Fri Mar 23, 2018 10:33 pm
gifts from grandparents and trusts

Postby taxnovice1 » Wed Oct 13, 2021 11:37 pm

Dear All,

I have a query regarding receiving money from my in-laws who live abroad.

My elderly father in law who is resident in Hong Kong wishes to gift a large sum of money and investments to my wife and I (a 6 figure sum). He is domiciled / tax resident of Hong Kong and has never lived in the UK and has no assets in the UK. The gift would be sent directly from Hong Kong to us here in the UK where my wife and I are domiciled and tax resident. I understand there is no tax due on receipt of this. He is wishing to transfer the money as cash and mainly investments in the form ETFs with the intention that interest earned from this can be used for us and towards our children's school fees.

Should my father in law therefore directly gift some money / assets to the children in addition to us, or would it be ok to gift this directly to us and then we transfer some of this to the children later down the line? My concern with the latter is that if this money is subsequently transferred to the children it may seem to have come from us / the parents and therefore be subject to the 100 pound rule for interest earnings and may also have implications for our inheritance tax planning.

My second question is regarding trusts. Would it be more 'tax efficient' to set up a trust for the children and are there any recommendations on the type of trust (including that which would allow the funding of private school and university fees directly from this?)

I appreciate I will probably need to seek some expert tax advice but would appreciate some initial advice.

Many thanks!

pawncob
Posts:4745
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: gifts from grandparents and trusts

Postby pawncob » Thu Oct 14, 2021 10:42 am

If he gifts monies directly to the children, then it's their money (and they can spend it if they wish), so you have no control. If it's done via a bare trust, then you retain control until they're 18.
If you gift some of it to the children the same applies, and you will also be taxed on the income in excess of £100. It will also count towards your IHT allowance.
With a pinch of salt take what I say, but don't exceed your RDA

iwmtaxadvisor
Posts:23
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: gifts from grandparents and trusts

Postby iwmtaxadvisor » Thu Oct 14, 2021 1:38 pm

You seem to be looking for alternative solutions to an as-yet uncertain set of priorities. Let us say that you
- want to use (say) 500k for yourself and your children for education and some income
- they should inherit this eventually and pass it on to their children

The alternatives are
- straight gift to you
- offshore trust (by a non-dom settlor)
- (offshore?) family investment company
- (this is quite typical) investment in properties, some of which are in the UK, with gift of each to various members of the family

Most people would say that a trust needs 1m to be effective in achieving the aims, and for an offshore trust, probably 2m. This route is therefore probably out.
The straight gift would not be right if you already know you have more assets than you are going to need because it will simply exacerbate your IHT problem: if you have less assets than you will need for independence then typically you're going to put this in a private bank and invest in world markets. It doesn't really matter which bank as long as they charge less than 0.5% all in.
The offshore FIC might work if your father does not mind maintaining voting control
The sprinkling of properties kind of works, but needs a lot of detailed work

There are special weekend courses to help a high net worth family go through all the choices and make decisions on matters just like this.
- look for us on Google "iWMTaxAdvisor"


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