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Claiming tax back

Practical Issues
Bouleversee
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Claiming tax back

#267106

Postby Bouleversee » November 25th, 2019, 7:10 pm

I've just discovered that my children have not claimed back the tax deducted on dividends paid on shares I gifted to my grand children in bare trusts with them as trustees before they were paid gross from 5.4.16 onwards. Is there a time limit for doing so?

Alaric
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Re: Claiming tax back

#267108

Postby Alaric » November 25th, 2019, 7:26 pm

Bouleversee wrote:I've just discovered that my children have not claimed back the tax deducted on dividends paid on shares I gifted to my grand children in bare trusts with them as trustees before they were paid gross from 5.4.16 onwards.


There hasn't been a withholding tax on dividends for many years. There was only a notional tax credit which interacted somewhere with the limits for higher rate tax. As far as I am aware, it was not possible to reclaim it.

Property Income Dividends/Distributions (PID) were however usually paid net, and still are. I curse ii for not identifying them on the cash transactions, meaning I have to cross check against Company websites to identify whether it's a PID.

Bouleversee
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Re: Claiming tax back

#267110

Postby Bouleversee » November 25th, 2019, 7:36 pm

Thanks, Alaric. That explains why we didn't tell them to reclaim it then. I'm afraid my memory is shot these days. I thought, however, that I used to claim tax back myself and I didn't have any earned income.

Alaric
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Re: Claiming tax back

#267111

Postby Alaric » November 25th, 2019, 7:42 pm

Bouleversee wrote: I thought, however, that I used to claim tax back myself and I didn't have any earned income.


PIDs can be reclaimed. Otherwise you have to go back to 1997 and the Gordon Brown raid on pension funds when he removed the ability to reclaim from most non-taxpaying investors.

Howard
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Re: Claiming tax back

#267112

Postby Howard » November 25th, 2019, 7:43 pm

Bouleversee

Forgive me for going slightly off-topic. Are you pleased with your decision to support your grandchildren with bare trusts? The reason for asking is that I am considering how to make gifts to my four grandchildren. I'm trying to decide between one discretionary trust which would be designed to give them fairly substantial sums when they get to around 25 or four bare trusts which they would receive now but would be able to access earlier, although obviously I could write to them giving similar guidance to that for trustees.

I have a good idea of the cost of setting up the discretionary trust, having spoken to a solicitor, but don't know the costs of set up for four bare trusts.

My guess is that the tax implications of the discretionary trust might become a bit more complicated in 15 years when they are around 25. But it seems a bit repetitive to set up four identical portfolios for bare trusts?

The contributions to either Trust routed would ideally be made over two or three years rather than as a one - off.

Other posters have made helpful comments on another forum, but any comments you might make would be appreciated.

regards

Howard

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Re: Claiming tax back

#267127

Postby Bouleversee » November 25th, 2019, 8:19 pm

Howard -

I believe in keeping life as simple as possible. There were no costs involved. I had quite a number of certificated shares and just completed share transfer forms (printed out from the registrar's site) in favour of each grandchild with their parents as trustees, using my ctg allowance each year plus any losses. No stamp duty to pay on gifts. Yes, they are legally entitled to access the money at 18 but if you have brought them up properly and explain everything and threaten to withhold any further gifts if they do so and squander the money, I doubt if you would have any problems. We certainly didn't with our own children. It does mean that each child can access the value when they need it for house purchase or sensible reason, with your guidance, without affecting the others and without paying any legal fees. It did mean that our own children had an adequate sum to put down as a deposit to buy a flat in London when they secured jobs there; they would need a lot more now but every little helps. My late husband used to claim back the dividend tax on our children's dividends and I had forgotten that the rules had changed since then.

As previously stated and is obvious, one's own ability to manage things declines as one ages and on the whole I think it is better to pass the responsibility to the next generation. The trouble is that if mine are anything to go by, they won't necessarily be as competent at managing the investments as you would be. However, if you select what seem to be relatively safe investments, tending towards steady growth rather than ultra high dividends in this circumstance, it should work out reasonably well. You need to make sure that your sprogs will reinvest the divs. sensibly if you are making them the trustees, however, which won't necessarily happen. I've told mine to open Junior ISAs for that purpose and for future gifts from me but am still waiting for that to happen in some cases. There comes a time when other priorities take over. If you don't hold shares you wish to dispose of, getting the parents to open junior ISAs which you could fund via them would be a simple solution, depending on what sort of annual sum for each grandchild you are contemplating.

Do let me know if I'm missing out by not doing trusts.
Last edited by Bouleversee on November 25th, 2019, 8:23 pm, edited 1 time in total.

scrumpyjack
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Re: Claiming tax back

#267128

Postby scrumpyjack » November 25th, 2019, 8:20 pm

I have set up bare trusts for all my grandchildren and greatly prefer that as an option compared with any other form of trust.
It costs nothing to set up. At Hargreaves Lansdowne I just told them each was a bare trust a/c, send them a copy of the birth certificate and the trust is in my name as bare trustee for the named infant. No charges other than the normal charges for a fund and share a/c (Nil if you stick to shares and ETFs as I do)

Each child gets a full income and capital gains tax allowance. As long as dividends do not exceed £10,000 a year and disposals and gains are within the limit, no tax return needs to be submitted.

It could not be cheaper or simpler.

At 18 they do need to be notified of the bare trust. It only needs to be put in their name at that point if they insist.

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Re: Claiming tax back

#267141

Postby Bouleversee » November 25th, 2019, 8:59 pm

Alaric wrote:
Bouleversee wrote: I thought, however, that I used to claim tax back myself and I didn't have any earned income.


PIDs can be reclaimed. Otherwise you have to go back to 1997 and the Gordon Brown raid on pension funds when he removed the ability to reclaim from most non-taxpaying investors.


Maybe I am confusing with tax deducted on interest. Surely one could claim that back within the limits?

Howard
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Re: Claiming tax back

#267190

Postby Howard » November 26th, 2019, 12:20 am

Bouleversee wrote:Howard -


As previously stated and is obvious, one's own ability to manage things declines as one ages and on the whole I think it is better to pass the responsibility to the next generation. The trouble is that if mine are anything to go by, they won't necessarily be as competent at managing the investments as you would be. However, if you select what seem to be relatively safe investments, tending towards steady growth rather than ultra high dividends in this circumstance, it should work out reasonably well. You need to make sure that your sprogs will reinvest the divs. sensibly if you are making them the trustees, however, which won't necessarily happen. I've told mine to open Junior ISAs for that purpose and for future gifts from me but am still waiting for that to happen in some cases. There comes a time when other priorities take over. If you don't hold shares you wish to dispose of, getting the parents to open junior ISAs which you could fund via them would be a simple solution, depending on what sort of annual sum for each grandchild you are contemplating.

Do let me know if I'm missing out by not doing trusts.


Many thanks, Bouleversee

Following your comments I will speak to a stockbroker to see if I can set up simple bare trusts with them. I agree on the idea of going for fairly safe growth orientated investments.

My children, too, need encouragement to deal with investments and as a result of helping to administrate their children's investments I'm hoping they will develop an interest and competence before they inherit the H portfolio!

regards

Howard

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Re: Claiming tax back

#267232

Postby Nocton » November 26th, 2019, 9:02 am

Re bare trusts, this earlier thread may be of interest:
https://www.lemonfool.co.uk/viewtopic.php?f=54&t=19506

Bouleversee
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Re: Claiming tax back

#267290

Postby Bouleversee » November 26th, 2019, 11:44 am

Howard:

I think the simplest thing to do if you haven't got certificated shares you want to gift would be to decide which ITs to buy, after reading the advice on the other thread, print out in advance sufficient transfer forms for each IT x no. of grandchildren and complete one form for each grandchild in favour of the trustee (yourself or your adult children) a/c the name of the grandchild, leaving out the number and date, buy the first IT, in a number divisible by the no. of grandchildren, on a day when market conditions seem OK using your online platform dealing account, adequately funded, and ask to receive the shares in certificated form (it would make sense to discuss this with the broker before you embark on this strategy) which will incur a small extra charge. You can then fill in the transaction details on the transfer form. wait for the certificate to arrive and send it off to the relevant registrar with a covering letter saying who you want the certificates to be sent to. Repeat till you have used all the money you want to gift and you don't have to do it all on the same day, which has its own advantages. The transfer price for your tax purposes is the closing price at the end of the day and is unlikely to differ much from your buying price if you buy late in the day. The dividends will be taxable on the grandchildren subject to their own allowances and could be invested in junior ISAs, paid into grandchildren's savings accounts or spent on their behalf. CGT will apply subject to their own allowance. To avoid paying any, when they needed the capital for flat purchase, we sold sufficient to use their allowance, loaned them cash to complete the purchase and sold the rest at the start of the next tax year. After all that, you just have to hope you live another 7 years to avoid IHT under the present tax law. And of course all could change after the election whoever gets into power. As the bare trustees hold the certificates, the grandchlldren would not be able to sell any shares without discussing it with parents/grandparents, which is a plus, whereas junior ISAs have to be transferred into ISAs in their own names at 18 so become immediately accessible to them.

If there is anything wrong with the above strategy, I'm sure others will point it out. As indicated, my brain is not as sharp and memory not so good as it used to be. I'd be interested to know whether brokers would get involved with such transactions other than buying the shares for you initially and certificating them but I suspect online platforms would not. We used to have a traditional broker when our children were small but I don't know whether they did more than that as my husband used to deal with it at that time. I'm almost out of certificated shares so I might have to do things differently myself.

One question I'd like to ask is whether any tax has to be paid at the outset if you put money into a discretionary trust. I thought that applied to trusts but perhaps not all of them since it has not been mentioned.

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Re: Claiming tax back

#267310

Postby Bouleversee » November 26th, 2019, 12:35 pm

PS to previous:

It has just occurred to me that it might be possible to buy the ITs/company shares directly from the registrars in bare trusts. Anyone know anything about this? Slightly more expensive but possibly a lot less hassle. OTOH they might want to hang on to the shares in Crest or whatever and transfer them into the children's names at 18 so one would lose all control. I prefer to hold certificates for this purpose.

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Re: Claiming tax back

#267329

Postby scrumpyjack » November 26th, 2019, 1:19 pm

Given that brokers like HL charge nothing other than dealing charges for a share account, I can't see the point of bothering with certificates.

I don't believe you can buy shares directly from registrars. They aren't brokers

Also you remove the hassle of dealing with dividends if you just do an ordinary bare trust with the likes of HL. The dividends are simply received in the HL account and you can accumulate and reinvest them periodically.

With my children, as I recall, I mentioned the bare trusts when they became 18 but did nothing about transferring them for many years and they never pushed me to do so.

Bouleversee
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Re: Claiming tax back

#267342

Postby Bouleversee » November 26th, 2019, 1:52 pm

Thanks, SJ. IWeb, which is my main platform, don't even do junior ISAs so I am fairly certain they wouldn't do bare trusts for children. I have an account with ii as well and I'll ask them. Equiniti are always offering to sell small holdings of mine so I presumed one could buy through them as well. Again, will enquire.

Alaric
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Re: Claiming tax back

#267351

Postby Alaric » November 26th, 2019, 2:12 pm

Bouleversee wrote: Equiniti are always offering to sell small holdings of mine so I presumed one could buy through them as well.


Equiniti offer several share dealing services including certificated. I think strictly speaking the Company doing the trading is distinct from the one acting as registrar.

https://www.shareview.co.uk/4/Info/Port ... hares.aspx

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Re: Claiming tax back

#267357

Postby Bouleversee » November 26th, 2019, 2:20 pm

Alaric wrote:
Bouleversee wrote: Equiniti are always offering to sell small holdings of mine so I presumed one could buy through them as well.


Equiniti offer several share dealing services including certificated. I think strictly speaking the Company doing the trading is distinct from the one acting as registrar.

https://www.shareview.co.uk/4/Info/Port ... hares.aspx


Well, yes, but essentially it's the same outfit. I've never bought or sold through any such companies. Could I use Shareview to buy or sell shares in companies for which they are not the registrar, i.e. are they just like any other broker?

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Re: Claiming tax back

#267454

Postby Gan020 » November 26th, 2019, 6:17 pm

Bouleversee wrote:Howard:

One question I'd like to ask is whether any tax has to be paid at the outset if you put money into a discretionary trust. I thought that applied to trusts but perhaps not all of them since it has not been mentioned.


When setting up a discretionary trust, the trust is assessed for tax. However, broadly speaking unless you are vesting the trust with assets worth more than £325k and in addition you have no hold over relief available the tax will be zero. Even above this there still may be no tax to pay. (Um, unless you have set up other trusts in the past and there's some other stuff too). And if you're vesting a trust with that sort of money you can afford a few quid for some financial advice.

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Re: Claiming tax back

#267458

Postby Bouleversee » November 26th, 2019, 6:30 pm

Many thanks. I don't really see the need for them unless one is very wealthy.


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