Tax on school fees gift to grandchild?
|Tax | Income Tax
Asked by webwiz, submitted
23 May 2014.
What are the tax implications if I give my grandson a lump sum to cover his school fees for the next 7 years? He will pay his fees annually so the lump sum would allow for an estimate of the interest he would get.
Answered by Justin on 02 June 2014
From an income tax point of view there is no implication, other than your grandson would have to account for any interest he earns on the money (e.g. if he puts it in a savings account until used to pay the fees). Although since his total annual income (as a child) will very likely be below the personal income tax allowance (£10,000 for 2014/15) I doubt he would end up paying any tax.
From your point of view, money you give away is deemed to fall outside of your estate after seven years for inheritance tax purposes. So, if you gift the money as a lump sum now and live for at least another seven years the money will escape the potential threat of inheritance tax.
One thing to bear in mind is that once gifted you legally have no control over how your grandson spends the money. You can restrict its use for school fees using some type of trust, but this would cost money to put in place and require ongoing work to maintain.
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Comment by bikingfuchsia at 5:02pm on 07 Dec 2014:
You can give Maintenance gifts to your children under 18 or in full time education which are considered exempt and therefore not liable for IHT. I am not sure if this exemption also extends to your grandchildren.
Otherwise if you can give the money as a regular, monthly/yearly sum and it does not come out of capital (i.e. does not effect your standard of living when living expenses deducted from income) then it would come under a regular gift exemption and therefore not liable to IHT, and the grand son would not get lumbered with a IHT bill in the event of your death.