Taxes due on a gift to a grandchild

[force21]

Hello,

I very rarely post on TLF but have been an avid reader of TLF and Motley Fool for many years. Over that time, the contributors to these boards have provided me with useful advice, and I'm after yet more help.

When my son was born, his grandparents started putting aside some money into a Witan Investment Trust in his name. Recently they asked him to set up an account with Hargreaves Landsdown, through whom they've been investing, and they then transferred the investment of roughly £35k into his account. I don't think the money was held in a trust (apologies if this is a bit vague) and I'm wondering what tax liability he has due to this gift, both now and in the future.

Firstly, would I be correct in thinking there's no inheritance tax due if his grandparents are alive for seven years from the time the money was gifted/transferred into his name?

Secondly, is there capital gains or similar due if he sells all of some of the investment? I think the current CGT allowance is £12,300, so could he sell £12k in each of the next three tax years (depending on the fund's performance obviously) and avoid any CGT?

Hopefully this is sufficient information, but feel free to ask for more and I'll do what I can to provide it,

Many thanks in anticipation of your help.

f21

[scrumpyjack]

So long as the money came from the grandparents, not the parents, the grandchild is taxable like any other individual, with their own personal allowance etc for income tax and their own CGT allowance.

As you say, no tax is payable on the making of the gift nor will there be IHT as long as the donor lives 7 years after making the gift.

If they are under 18 HL will need the account to be in the name of an adult, but designated with the initials of the grandchild. The adult holds the shares as 'bare trustee'. This does not mean that there is a 'trust' as a legal entity, the bare trustee is simply a nominee for the grandchild, who remains the beneficial owner.

ps if the grandparents already owned the Witan shares and gave them to the grandchild, that is deemed to be a disposal for CGT purposes at market value at that date, with potential CGT, and the grandchild is deemed to have acquired them at market value at the date of the gift.

[Dod101]

The grandparents put the money aside 'in his name'. Does that not make it a bare trust ab initio? If so then they are not gifting the shares now anyway, so there should be no question of tax or having to live for a further 7 years.

Dod

[genou]

The grandparents put the money aside 'in his name'. Does that not make it a bare trust ab initio? If so then they are not gifting the shares now anyway, so there should be no question of tax or having to live for a further 7 years.

Dod

That depends on what they have been reporting over time. Did they return the dividends as their own income, or treat them as the grandchild's ? If there were any sales, how were they treated for tax ?

[tjh290633]

When my son was born, his grandparents started putting aside some money into a Witan Investment Trust in his name. Recently they asked him to set up an account with Hargreaves Landsdown, through whom they've been investing, and they then transferred the investment of roughly £35k into his account. I don't think the money was held in a trust (apologies if this is a bit vague) and I'm wondering what tax liability he has due to this gift, both now and in the future.

I have been doing likewise for my eldest grandchild, now nearing 21. H-L told me that I could continue with the bare trust, which is what the grandparents undoubtedly had, as long as I like but, if I wish to transfer the shares into her own name, then she should set up such an account and they will transfer the investments to her account.

Presumably they set up a direct debit originally with Jump Savings, in which case the regular payments will have come from income and are therefore outside the scope of inheritance tax.

The income from the shares has always been his, and with that level of holdings, the income will be between £800 and £900, well below the income tax threshold. He has the chance now to move £20k into a S&S ISA and the remainder after 6th April, which will make them immune from taxes of any sort.

TJH

[force21]

TLF comes up trumps again.

Thanks to all of you for your prompt replies, all of which have put my mind at rest.

tjh290633's situation sounds very similar. The process mentioned with respect to transferring to an account in my son's name is exactly what he did, so it's reassuring to see that he should be fine. He finished uni last year so his income from part-time jobs plus any income from the investments are certainly well below the income tax threshold.

Thanks again to all who replied.

f21