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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15917
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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As a grand parent I would like to provide funds for my two

Resolved Question:

As a grand parent I would like to provide funds for my two grandsons aged 9 and 11 to purchase a buy to let property. The rental income could then be set against their tax allowances and would be thus virtually tax free. But to achieve this they must own the property.
The rental income would be used for their present school fees and in due course for university expenses.
Is such a plan feasible or would it be deemed tax evasion.
I appreciate I would be creating a PTE but my age is such that 7 years survival is most likely.
As minors an adult would need to hold the property on trust for them until they reach 18
so could their father or myself do this?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you with my answer.
Expert:  TonyTax replied 1 year ago.
If you make a gift into a trust in excess of £325,000, the excess will be charged to Inheritance Tax at the lifetime rate of 20%, half the death rate of 40%, unless it is a bare trust in which case there is no lifetime IHT charge. If you die within the seven years of making the gift, there may be more IHT to pay due depending on when you die. The IHT on death charge tapers away gradually after the third anniversary of the gift as you will see here. You can read about the different types of trust here. The problem with a bare trust is that once an individual reaches the age of 18, they have a right to demand access to the income and capital. As minors cannot own property, a trustee can control the property whilst the beneficiaries are minors. The income would be the beneficiaries for tax purposes and they can use their personal allowances to mitigate any income tax charge. A discretionary trust would be liable to a ten year anniversary charges to Inheritance Tax on the value of the assets within it and there may be an exit charge as well. Take a look here and here for more information. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you for the advice:I have the following questions that hopefully you can answer with a simple Yes or No.1) I am assuming that as you did not indicate otherwise, the action I am contemplating can be considered as tax avoidance and not tax evasion, and therefore will not be challenged by HMRC2) I intend this to be a bare trust and fully accept the fact that the boys on attaining their majority can do as they wish with the property which is being purchased for them with the funds I am providing as their grandfather .3) That there is no impediment to the boys mother holding the property on trust for her sons until they are 18, and by doing so she will not fall foul of the rule that income generated by a persons own children is treated as the parents income for tax purposes . The funds for purchase of the property will come solely from me as their grandfather.4)That the boys will be required to submit a self assessment each year declaring the rent they receive even though the rent will be well within their tax free income allowance.5) The boy's yearly self assessment may be submitted on their behalf by their mother until the reach 186) That as the boys own no other property the standard SDLT will apply, even though their mother as trustee owns and live in her personal propertyIf these seem questions obvious it is solely because I do no want this plan to failise if these semm
Expert:  TonyTax replied 1 year ago.
1 It's tax avoidance, not evasion. 2 That 's fine. 3 The gift will be from you, not their mother so she won't have any tax problems. 4 Yes. 5 Yes. 6 Yes.
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