6th Form Private School Fees- Payin from Kids Savings Accnts
Discussion
Hi
When our kids were born, their grandparents generously set up savings accounts for them where they pay in sums per month from their income. The savings came from their grandfather's taxed pension income as he was retired for the whole period since their birth.
I've never seen the accounts, know very little details but understand it is with a mainstream Building Society and kids are named account holders, but I am not sure if the grandparent(s) are named on it at all. Grandad describes it as a trust account though, that my kids can access at anytime from 16. Kids are 16 and 14 and no withdrawls have ever been made, so we don't know for sure. Grandad is a little bit "secretive" about his finances, tbh, but we know the account exists and there's about 60k in one and near 50k in the other.
One of my kids is looking to go to 6th Form at a private school with not insignificant fees and these accounts were set up to help with education etc as well as give a start in life. Grandad has said he's happy for the account to be used for school fees.
My main question is, as a 16 year old, can the fees be paid direct from "her account" to the school without her incurring any "income tax" exposure. I am presuming so, she doesn't work (!), but if there is no income tax, presumably there may be an "inheritance tax" issue should grandad pass away within a period of her spending it? Or is that ok/ clear as the account has been funded solely from grandad's taxed income over the last 16 years, (and that can be proven should it need to be)?
I know the answer is "independent legal advice" , but we have such limited details of it and grandad is sometimes difficult to button down.
We are at the stage of my kid just being offered a place at the school last week, and we spoke to grandad to confirm some details, but he has yet to do so, and all he will say is "dont worry the money is there!". And we are sure it is, just need to know of the possible implications of spending it. We need to accept the place, and pay the acceptance fee (!) in the next few days
Any ideas, or are we over thinking it?
When our kids were born, their grandparents generously set up savings accounts for them where they pay in sums per month from their income. The savings came from their grandfather's taxed pension income as he was retired for the whole period since their birth.
I've never seen the accounts, know very little details but understand it is with a mainstream Building Society and kids are named account holders, but I am not sure if the grandparent(s) are named on it at all. Grandad describes it as a trust account though, that my kids can access at anytime from 16. Kids are 16 and 14 and no withdrawls have ever been made, so we don't know for sure. Grandad is a little bit "secretive" about his finances, tbh, but we know the account exists and there's about 60k in one and near 50k in the other.
One of my kids is looking to go to 6th Form at a private school with not insignificant fees and these accounts were set up to help with education etc as well as give a start in life. Grandad has said he's happy for the account to be used for school fees.
My main question is, as a 16 year old, can the fees be paid direct from "her account" to the school without her incurring any "income tax" exposure. I am presuming so, she doesn't work (!), but if there is no income tax, presumably there may be an "inheritance tax" issue should grandad pass away within a period of her spending it? Or is that ok/ clear as the account has been funded solely from grandad's taxed income over the last 16 years, (and that can be proven should it need to be)?
I know the answer is "independent legal advice" , but we have such limited details of it and grandad is sometimes difficult to button down.
We are at the stage of my kid just being offered a place at the school last week, and we spoke to grandad to confirm some details, but he has yet to do so, and all he will say is "dont worry the money is there!". And we are sure it is, just need to know of the possible implications of spending it. We need to accept the place, and pay the acceptance fee (!) in the next few days
Any ideas, or are we over thinking it?
Edited by poo at Paul's on Friday 3rd February 11:03
If I've understood you correctly:
The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
Edited by sleepezy on Friday 3rd February 10:41
RicksAlfas said:
There will be a named adult on the account as well as the kid's name. Most building societies will want that adult present for over counter queries other than simple paying in. I think you will have to get Grandad involved if you want to move substantial money out of it.
Yes, my thinking too, Grandad is happy to be involved, btw, we hope there will be no "moving of money", so to speak, just set up a direct debit to pay the school fees quarterly in advance. sleepezy said:
If I've understood you correctly:
The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
Thanks for the response, and yes you've understood spot on. The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
Edited by sleepezy on Friday 3rd February 10:41
Grandad has a decent pension from his former employment and they live very frugally indeed! There are two other grand children on my brother's side that benefit similarly. But it is all from him taxed income, he never transfers anything from his own savings accounts for example, just regular each month to the 4 grandkids. We dont know the amounts but i reckon he gives away 2k a month or to to them collectively, my kids are the oldest so it used to be less.
A generous old boy and girl, that's for sure.
poo at Paul's said:
sleepezy said:
If I've understood you correctly:
The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
Thanks for the response, and yes you've understood spot on. The money is coming from your Grandfathers own 'spare' income in that his pension exceeds his requirements and he has been gifting it on a regular basis, presumably for the best part of 16/14 years and into an account where the prime account holder is the child. In this case it's unlikely any IHT is due as gifts out of income do not form part of the calculation.
Have a look here > https://www.gov.uk/inheritance-tax/gifts at the "If you make regular payments" section. Note he cannot swap capital and income (ie live of the capital while gifting the income). There are also annual allowances he could make from capital (currently £3k in total) and a chunk of it will now be outside the seven year rule if he's been contributing since birth anyway.
Your children are unlikely to have an income tax issue - the gift they receive is not income (it's a gift) - they only risk is interest income but given value you think is in the accounts and rates recently (OK maybe not very recently!) I'd be very surprised if the thresholds are reached - but you won't know this until you can see what's going on in the accounts themselves.
Allow me to re-iterate the income/capital point - the exemption is only there if the grandfather is living off the income element of his pension and then has some spare - he cannot live off any of the capital element.
Access to the account will require some details from the Grandfather. I hope he hasn't just put it into a 'side' account in his name as that may now have potential IHT implications (as it won't be in the child's name, but his still).
Edited by sleepezy on Friday 3rd February 10:41
Grandad has a decent pension from his former employment and they live very frugally indeed! There are two other grand children on my brother's side that benefit similarly. But it is all from him taxed income, he never transfers anything from his own savings accounts for example, just regular each month to the 4 grandkids. We dont know the amounts but i reckon he gives away 2k a month or to to them collectively, my kids are the oldest so it used to be less.
A generous old boy and girl, that's for sure.
Good luck with your kids education
CheesecakeRunner said:
I think you’ll need to find out if the accounts are Child Trust Funds (or have been migrated to Junior ISAs).
https://www.gov.uk/child-trust-funds
If they are, the you as a parent (even Grandad) can’t access the money except in some very specific circumstances. And the child can’t get at it until they are 18, although they control the account from age 16.
Cheers. Yes, this is a part concern of mine as grandad is a bit ‘vague’ in his description of it all, and we’ve not really been in a position to question too much, his / grandkids money and all that. https://www.gov.uk/child-trust-funds
If they are, the you as a parent (even Grandad) can’t access the money except in some very specific circumstances. And the child can’t get at it until they are 18, although they control the account from age 16.
But decisions need to be made very soon so we need to ask what may be awkward questions now!
Cheers
Unlikely to be CTF's or Junior ISA, as it should be impossible to open one without parent's knowledge/consent, as there's an annual limit to contributions.
Given the near-zero interest rates over much of the last decade, hopefully it's been in something other than a regular savings account? - but if so, that raises CGT questions.
If it's literally in a savings account, who's been declaring the interest and possibly paying tax on it? (If interest has been taxed at source, and it's in your kids name, there's a possibility of getting a tax refund...)
If the account is in Grandad's name, you need to address that ASAP, because of the risk of IHT liability. 40% tax isn't funny at all.
Given the amount involved, it's probably worth Grandad getting a bit of professional advice.
Given the near-zero interest rates over much of the last decade, hopefully it's been in something other than a regular savings account? - but if so, that raises CGT questions.
If it's literally in a savings account, who's been declaring the interest and possibly paying tax on it? (If interest has been taxed at source, and it's in your kids name, there's a possibility of getting a tax refund...)
If the account is in Grandad's name, you need to address that ASAP, because of the risk of IHT liability. 40% tax isn't funny at all.
Given the amount involved, it's probably worth Grandad getting a bit of professional advice.
Not directly related OP but I gifted my kids some money a few years ago….their school fees get paid directly from the account. There is no tax liability in this case. The bank accounts are in their sole names but I actually pay the school fees on their behalf as I am a signatory on the accounts.
When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
Cheib said:
Not directly related OP but I gifted my kids some money a few years ago….their school fees get paid directly from the account. There is no tax liability in this case. The bank accounts are in their sole names but I actually pay the school fees on their behalf as I am a signatory on the accounts.
When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
Kids, or grand-kids?When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
Parents paying kids school-fees isn't considered a gift to the child. Hpwever, Grandparent paying school-fees is - with possible IHT repercussions. https://www.hcrlaw.com/blog/tax-efficient-ways-for...
Ultimately the question is whether the money in the account already belongs to the child directly or via some simple trust arrangement. It's entirely possible that for practical purposes it already does.
In the real world the questions are likely to be,
All things being equal, any element of "gift" from grandfather (i.e. IHT risk) should have been exhausted when money was put into the account, not when it's taken out. But that depends on the detail of the structure.
In the real world the questions are likely to be,
- Is there an age restriction on when money can be withdrawn, and
- Whose signature/authority is needed to access the money.
All things being equal, any element of "gift" from grandfather (i.e. IHT risk) should have been exhausted when money was put into the account, not when it's taken out. But that depends on the detail of the structure.
Just to add - Income Tax should not be relevant unless cash is paid out as income from a trust. It all depends on the structure of the arrangement.
But don't forget Junior would get a "personal allowance" just like anyone else. So even if there is income there will be no tax due unless the income exceeds £12,570 p.a. If there is income tax it can't be avoided by paying direct to the school.
There needs to be a conversation with Grandad.
But don't forget Junior would get a "personal allowance" just like anyone else. So even if there is income there will be no tax due unless the income exceeds £12,570 p.a. If there is income tax it can't be avoided by paying direct to the school.
There needs to be a conversation with Grandad.
silentbrown said:
Cheib said:
Not directly related OP but I gifted my kids some money a few years ago….their school fees get paid directly from the account. There is no tax liability in this case. The bank accounts are in their sole names but I actually pay the school fees on their behalf as I am a signatory on the accounts.
When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
Kids, or grand-kids?When I pay the school fees I take the invoices to the bank so they can see exactly what it is for and why it is going where it is etc.
Parents paying kids school-fees isn't considered a gift to the child. Hpwever, Grandparent paying school-fees is - with possible IHT repercussions. https://www.hcrlaw.com/blog/tax-efficient-ways-for...
Cheib said:
Kids. I have gifted money to them, some of which is sued to pay their school fees. It is considered a gift as if I die the 7yr IHT rule would apply. Hopefully I won’t die !
Understood. No need to worry about the school fees part, as it's treated the same as paying for their food and clothes. That part doesn't need to be a gift, so outside IHT.Gassing Station | Finance | Top of Page | What's New | My Stuff