Why is this illegal? Or is it?

[Kett]

Asking for a second opinion (or more!) about a question I asked a financial adviser, who responded by saying it was illegal and intimated I was unethical/immoral for asking it!

But I do not know what aspect is illegal and I am not trying to cheat anyone or avoid any tax. So can anyone clear it up for me?

It regards the options open to my mother who is in her 80's and has come into a bit of money but her whole estate is under £100k and she is living in a rented supported flat. Her pension income about pays for her outgoings but not extras such as going out, hair dos, dental, chiropody etc

The two things she needs and wants are 1) to be able to continue living where she is 2) to see her family secure.
One of her children (not me!) is in a dire financial situation as money is tied up, and he is close to loosing his home and job.

I asked if we could do something like an annuity within the family where she gave money to her children and they give her a monthly income.

I have looked at the HMRC site and I can see nothing wrong with her giving money to her children. The only requirement is that gifts over £3k/yr or £6k per 2 years are added to the total estate on death (within 7 yrs) to see if inheritance tax is due. There is no problem here and even added back in, her total estate will be well under the limit.

I cannot believe there is any law saying her children cannot give to her.

So what is illegal?

I doubt she will do this and I am not about influencing her will, but from what she said yesterday she will want to give to her children anyway. I don't know how much.

But I want to know why it was so awful that I asked and exactly what is illegal, because I do not want to break any law. Thanks.

 

I think you need to see an accountant and don't go back to the financial advisor.

Nothing illegal or immoral about helping ones kids out in my book.

 

[ads1188]

Asking for a second opinion (or more!) about a question I asked a financial adviser, who responded by saying it was illegal and intimated I was unethical/immoral for asking it!

But I do not know what aspect is illegal and I am not trying to cheat anyone or avoid any tax. So can anyone clear it up for me?

It regards the options open to my mother who is in her 80's and has come into a bit of money but her whole estate is under £100k and she is living in a rented supported flat. Her pension income about pays for her outgoings but not extras such as going out, hair dos, dental, chiropody etc

The two things she needs and wants are 1) to be able to continue living where she is 2) to see her family secure.
One of her children (not me!) is in a dire financial situation as money is tied up, and he is close to loosing his home and job.

I asked if we could do something like an annuity within the family where she gave money to her children and they give her a monthly income.

I have looked at the HMRC site and I can see nothing wrong with her giving money to her children. The only requirement is that gifts over £3k/yr or £6k per 2 years are added to the total estate on death (within 7 yrs) to see if inheritance tax is due. There is no problem here and even added back in, her total estate will be well under the limit.

I cannot believe there is any law saying her children cannot give to her.

So what is illegal?

I doubt she will do this and I am not about influencing her will, but from what she said yesterday she will want to give to her children anyway. I don't know how much.

But I want to know why it was so awful that I asked and exactly what is illegal, because I do not want to break any law. Thanks.

Everyone is allowed a nil rate band of £325k so as long as any transfers made to family, friends etc below this amount would not be taxable. There is also a yearly 3k exemption along with a small gift exemption of £250 per person per year.

As you mentioned your mothers estate is well below £325k so I wouldn't worry about any transfers of cash to family (as long as she hasn't used any of her nil rate band)

Any regular income paid to someone on a regular basis is also exempt for IHT purposes. Therefore any money paid to your mother on a monthly basis will be ok.

The points to note are the 2 points above are not illegal.

Like SIREARL said dont go back to the financial advisor and see an accountant.

 

[talkinpeace]

What the IFA might have meant is that it WOULD fall foul of the rules about savings and incomes if you wanted a state supported care / nursing home place
but otherwise I agree with the others - certainly not illegal : she can give you whatever she likes. Especially if it does not impact on her lifestyle.

 

[Strontium Dog]

Is she receiving any benefits which are only available when savings are below a certain level?

If she is, then depriving herself of a large chunk of her savings by giving them away is making her eligeable for benefits she is not really entitled to.

I think that this is what the financiala adviser may have been alluding to.

 

[OldWelshGuy]

Maybe what he was saying would be illegal is that it would be a deal that should fall under the Financial and investment laws and she is not authorised to provide such a product.

You can't offer investments or loans unless you are licenced.

A formal arrangement is really out of the question, it would have to be an informal one (not recommended within a family environment though).

 

[Kett]

Is she receiving any benefits which are only available when savings are below a certain level?

No her pensions fully pay for her flat and meals where she is. It leaves nothing for such things as chiropody, hairdressing and dental, toiletries and treats, but she does have some savings and a bit more coming in (hence the question arising). Probably totaling about 50-60k.

 

[Kett]

Maybe what he was saying would be illegal is that it would be a deal that should fall under the Financial and investment laws and she is not authorised to provide such a product.

You can't offer investments or loans unless you are licenced.

A formal arrangement is really out of the question, it would have to be an informal one (not recommended within a family environment though).

So when people borrow or lend in families it is strictly not supposed to happen? How many businesses are started or propped up by loans from within families? I guess all of these are informal within families! Or is it a technically a gift from a-to-b and another gift from b-to-a later when they pay back.

 

[OldWelshGuy]

So when people borrow or lend in families it is strictly not supposed to happen? How many businesses are started or propped up by loans from within families? I guess all of these are informal within families! Or is it a technically a gift from a-to-b and another gift from b-to-a later when they pay back.

You didn't read what I said you just read what you wanted to hear.

You proposed setting up an anuity that is covered under the financial services regulations and setting one up without the proper licence is illegal.

If money is loaned, no interest is paid, then that is fine. If however there is any form of interest (which an annuity involves) it would be illegal. To charge interest on a loan you need a consumer credit licence, to offer an annuity, you need a financial planning certificate that covers annuities.

Of course family can loan money to relatives without any legal issues, however, if the aim of the loan is to reduce the capital wealth of an individual in order to gain a financial advantage from another party, tyhen that could bbe considered fraud or obtaining a pencuniary advantage by deception.

 

if the aim of the loan is to reduce the capital wealth of an individual in order to gain a financial advantage from another party, tyhen that could bbe considered fraud or obtaining a pencuniary advantage by deception.

Or as its more commonly called.

A member of the financial services industry.

 

[Financial-Modeller]

Leaving aside the legal questions addressed previously, is it good judgement for your mother to be relying on an ongoing income - for an uncertain duration, obviously - in part from someone who has money problems?

She/you/the family should consider where her future income will come from if it does not come from the family member expecting to lose home/job etc. In the event of 'default' this could become awkward for you all.

 

[Kett]

You can't offer investments or loans unless you are licenced.

No, I read what you wrote. I understood you to be saying you cannot loan money in any way if you are not licenced.

I now think you are saying you cannot charge interest if you are not licenced. This is very different.


Even that contradicts advice I have received that you can lend into your Ltd business and charge interest as s director and I have seen advice on this forum (although cannot find it now) where someone is lending their partner (as in life partner not business partner) a sum to start their business and the advice was that they could charge interest.

However that is by no means what I was asking to do. As a family we stand together and love and support each other. I know my mother will want to give from what she has told me and I wanted to ensure she can still live in comfort.

As I am asking for the legal points beforehand, I am mystified as where you get 'fraud' and 'deception' from. No one is looking to gain financial benefit from another party if by that you mean state funded care or reduced tax liability. I thought I had made that quite clear.

However thanks for your comment below. I think I am getting a picture of what is legal

Of course family can loan money to relatives without any legal issues,

 

[OldWelshGuy]

I mentioned the potential implications with regard fraud etc, to prevent anyone else jumping in to make that point clear. At no time did I make any accusations etc.

I think it is best I leave this thread, and that you take proper legal advice

 

[Kett]

Leaving aside the legal questions addressed previously, is it good judgement for your mother to be relying on an ongoing income - for an uncertain duration, obviously - in part from someone who has money problems?

She/you/the family should consider where her future income will come from if it does not come from the family member expecting to lose home/job etc. In the event of 'default' this could become awkward for you all.

Yep, Thanks, I had been weighing this. But I think she is determined to give at least some. She would be devastated if that did happen. The loss of job/home comes with the worst case scenario as a result of not solving the immediate problems. The employers have said the job would go if bankruptcy resulted, otherwise job and house is safe.

Other family members would make good any monthly income, I am sure. But could probably not refund the whole loan, depending on what she gave.