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Where Taxpayers and Advisers Meet

Joint Account with children

Joined:Wed Aug 06, 2008 3:22 pm

Postby vinodkumar » Sun May 29, 2005 1:26 am

I have 2 children both now under 13 years of age and since when they were 7 have opened a Joint building society account to build up some savings for them when they grow up. Both my wife and I transfer annual amount of £3000 into each of these accounts which forms part of our gift for the yr for IHT purposes. The monies have not been used at all so far but we forsee using it for their education costs in future or as a deposit for purchase of their private residence. We may also borrow the monies if we require for our own purposes (haven't done so far but MAY do so in future).
My concern is that as the Acccounts are in Joint names with ourselves can they really be regarded as gifts for IHT purposes? The tax office may infer that we may have effectively put the monies away for ourselves when children were young and now we are using it back for our own self so it was never a gift anyway.
In hindsight are we better off accumulating monies in an A&M trust set up for the children? How would we go about setting up an A&M trust & how much would it cost to set up?
Any guidance will be most appreciated.

Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Sun May 29, 2005 2:46 am

The interest on this account should be declared as your income in your tax returns because the capital has arisen from the parents.


Arnold Aaro
Joined:Wed Aug 06, 2008 3:11 pm

Postby Arnold Aaro » Sun May 29, 2005 2:48 am

Anthony Nixon
Joined:Wed Aug 06, 2008 2:18 pm

Postby Anthony Nixon » Wed Jun 01, 2005 1:22 am

AS things stand the Revenue would argue that you have reserved a benefit in the total value of the accounts. You still have the ability to draw out the money and use it for yourselves.

One alternative is for the accounts to be in your children's names alone. The problem here is that once the children are 18 they are themselves entitled to draw out all the money and you have no control on how they spend it.

A trust is therefore probably the best option. It does not have to be an A&M trust. While these trusts have their benefits for children there is no significant benefit while the accounts for each child are under the (presently £275,000) IHT threshold. I would propose a life interest trust of which you and your wife are trustees. The children would be entitled to the income for now (although, as Ramnik says, while the children are under 18 the interest on the accounts is taxed as your and your wife's personal income) and you would have power in the trust deed to use the capital for the children (or pay it over to them) when you thought it was appropriate.

Cost for this sort of trust should be £200 to £300 + VAT.

Do let me know if I can help further.

Anthony Nixon
Lester Aldridge Solicitors
Alleyn House
Carlton Crescent
SO15 2EU

Tel: 023 8082 0442
Mob: 07881 920742
Fax: 023 8082 0441

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