Social Security Death Benefit - Minor - UK Taxes

Hi-

My son receives $1030/mo from Socail Security in the way of a death benefit and will do so until he is 18.

Since his dad's death, I have left this money in my US bank account. However, as this is the 'child support' that the government essentially pays upon his father's death - I do, in fact, need it to help with housing expenses, etc. Not all of it - just a portion. The rest will go into a savings account for uni.

I need to know - is my son liable for tax in the UK?

Here are important facts:
1) The money goes into my bank account but is HIS MONEY and is received under his social security number.
2) US government say I am not subject to tax on this money (as it is not mine) and that my son is not subject to tax on this money because it is a benefit and not an income.
3) The money is all currently in my US bank account and has not been transferred to the UK.

A secondary question:
As I am liable for paying any taxes on a bank account in the UK holding over $10,000 - which I don't have presently -
1) If we can safely bring my son's money into the UK, is it best to have my husband (UK resident) be the primary on my son's university savings fund? I spoke with the bank and they will not open an account in my son's name exclusively.

Thanks and I hope I can get an answer because I need to transfer money soon.

Thanks!

Having it in your account could be an issue but if you open a trust account for your son, it should be fine, as far as i know (not a tax expert)

http://www.hmrc.gov.uk/trusts/iht/which-trusts-pay.htm

The money is not allowed to be put into a trust fund. I asked about that at the time I dealt with the paperwork with the SSA. It must go into my account as they cannot send a cheque in the post.

At that point, they said I could move it into any other account I want for him.

We are a very skint family and I am really upset at the idea that I could possibly taxed for income which I do not get. It would be the equivalent of being taxed on getting a child tax credit or on child support!

I have a trust account for my son which has my name on it as trustee.  Would they put the money into an account like that?

I don't know about the taxes, but you are required to report an overseas account that holds more than $10,000 in it to the US government. 

Possibly. Is your trust account in the US?

My other concern though doing that is that we actually do need a portion of the money for living expenses for my child. I wish I could just live without all of it and save it all for him, but I can't. No where close.

This is a benefit given in the case of a death of a parent so that the remaining parent receives a form of 'child support'. However, the benefit is received under the child's name and social security number.

If I put it into a trust, would I be able to draw out of that trust a set amount each month and then leave the rest in the account to accrue.

Plus, if my name is on the trust, then wouldnt I still be liable for it?

Jayen, the kind of trust account I have for my son is a basic savings account. You can pay in and take out as much as you like and you definitely do not pay any tax on it. The bank asked me to sign a tax exemption form for this purpose.

The account is with Santander (Abbey) and is called a "Flexible Saver (Kids)". The savings book has his name at the top and says "owner" after his name and my name underneath with "trustee" next to it.  I am sure most banks  offer something along these lines.

 

Thanks -

I will look into that option if I need it.

I tried calling HMRC for an answer but they didn't even know....lol. They are having a specialist call me back on Friday to help me out. They said that if it is taxable, it would only be the amount in excess of 6400GBP which isn't much. So some of my worries are over. I need to xfer some of this money into my UK account within the week and so that at least takes away my worries about bringing in a few thousand dollars in the short term.

I have so many tax woes right now.

Jayen, what an interesting technical question! I am not surprised that the HMRC helpline could not come up with an immediate answer, and that you will get a call back.

Your son is presumably living in the UK. You don't actually specify that but I assume that to be the case. I think the payments are your son's income for tax purposes, not yours, and indeed are liable to tax. There is actually provision buried in the UK tax legislation about this. Have a look at this extract from the HMRC Manuals. Reading that I conclude :-

A taxable foreign benefit is any benefit that is payable under the law of a country or territory outside the United Kingdom that is:

    * substantially similar in character to a benefit listed in Section 660 Table A ITEPA 2003 (see EIM76101) and
    * payable to a person resident in the UK.

-: and indeed it is indeed "substantially similar in character to a benefit listed in Section 660 Table A ITEPA 2003". That is, I think it is similar in character to a benefit that if paid by the UK Government to someone in the UK would indeed be taxable, and thus I think the foreign benefit is taxable here. I do not think it assists you at all that it is not liable to tax in the US.

Here in the UK children can be taxpayers in their own right, and are entitled to a Personal Allowance like everyone else. So I think you have correctly realised that there may be some tax to pay, but not a lot.

How old is your son? And when did he move to the UK?

Thanks for responding and looking it up John.

My son is, indeed, living here in the UK with me. He moved here with me in August of 2009 after his father's death and will, of course be living with me permanently.

I think I might be correct to think that my son's income for the year will only be from April to April, so in the first year he should not owe anything as he will be under the threshold for the first year. The second year he will likely have a nominal tax amount due about 265GBP. Which I suppose I could pay in a lump sum.

Just sucks a bit that they are essentially taxing my child support. And the money for my son's uni. Plus, it wasn't his choice to live here (although he is happy here) and is coming out about $400 the poorer per year for the privilege of his father dying.

Do you have any suggestions as to how we might be able to shelter any money we put into savings for him? I realise that it is some years away from now before our nest egg for him reaches $10,000. However, if there is a way I can set it up now to avoid pain later, I would like to do it. I would like to think he will get all of his money he is due when it comes time to go away to uni.

Also, my husband and I have about $4600 in savings here in the UK. Would it be best to put this money into my husband's sole account (we keep yours, mine and ours accounts to make sure we can save an pay bills properly on a shoestring budget)?

Thanks for any advice!

Forgot to add- my son is 8 - soon to be 9.


Tax issues make my head feel like it is filled with spiders.

You do not indicate where your son is domiciled for UK tax purposes.

If he is non-UK domiciled he could file a UK return claiming the remittance basis in which case there'd be zero UK tax if the income was never remitted to the UK (if he claims the remittance basis he does not get the personal allowance incidentally).

The tax treaty is of no help because it basically says that if the benefit is taxable here (John & I think that it is is unless the remittance basis applies) then there is no US tax, but there is none anyway.

Assuming your son is a US citizen, a UK trust would be a bad thing because the US would require additional foreign trust filing annually (IRS Forms 3520 and 3520-A)  which are a pain and carry serious penalties even if they are a day late.

The second year he will likely have a nominal tax amount due about 265GBP. Which I suppose I could pay in a lump sum.

Possibly, but that depends upon the exchange rate in the future, and especially in current economic conditions, it really is impossible to guess these things.

it wasn't his choice to live here (although he is happy here) and is coming out about $400 the poorer per year for the privilege of his father dying.

That is one way of looking at it. Another is the a British child those father died gets no exact comparable benefit at all. I think this is taxable in the UK because it is vaguely comparable to Widowed Mother's Allowance, which is taxable.

I have about $4600 in savings here in the UK. Would it be best to put this money into my husband's sole account (we keep yours, mine and ours accounts to make sure we can save an pay bills properly on a shoestring budget)?

I think you should set up a separate account for your son, and refer you to the post above by Shahbanou, which mentions an account which seems to be ideal.

Do you have any suggestions as to how we might be able to shelter any money we put into savings for him?

I think, let's wait and see what HMRC say on Friday before looking into that.

Finally, guya, I think the money is being remitted here, so I am not sure that possibility exists.

Maybe the best way would be to continue having the funds paid into your US account and have it set up to make regular transfers to a UK trust/savings account (like the one I detailed above).  That way the US end is happy and you won't have to pay any tax on it there and your son's account won't be taxed here either.

Jayen, any update from HMRC yet?