Loans

If your parents make you a loan - there are unlikely to be any consequences from a tax point of view in actually making the loan but if you were to pay them any interest - this would be then be treated as your parents' income for that tax year.

If the loan is not repaid it is effectively a gift and will come under the rules for gifts, which we cover next.

Gifts

You are entitled to receive income in your own right no matter what age you are.

Additionally you have your own tax allowance to set against your taxable income and depending on the type and level of your income you may have the 10% savings rate tax band to use as well.

If your income is normally taxed before you get it e.g. bank or building society interest, it is possible that year on year you may be overpaying tax and in that case you will need to claim a repayment.

However, if you are under 18 and unmarried and your parents provide you with funds by gift or otherwise (both directly or indirectly) and these funds are invested and produce income of over £100 before tax each year (looking at the total gifts they make to you and not each gift separately) - then for tax purposes this entire income (not just the excess over £100) will be treated as your parents' and not your income. In that case you will not be able to reclaim any tax overpaid on the amount received.

If you are under 18 and your grandparents provide the funds instead - these rules do not apply and they can make any level of gift even if the annual income from the invested gift is over £100.

If you are 16 or 17 this also applies where your parents make a gift to an ISA in your name and the income is over £100 gross per year.

You also need to remember that your income counts when looking at the level of student loan you can get, so any income from a parental gift may affect this amount.

The above rules cease to apply once you are 18 or over.

Some of the more common exceptions to the rule include:

• Gifts or capital sums that are given to you by your parents that produce in total less than £100 gross per year;
• Pensions contributions paid by your parents on your behalf up to £3,600 (net of basic rate tax at 20%). Even if you do not pay tax you will still get the benefit of the extra tax being added to your parent's payment. So in fact whilst your parents pay the net amount of £2,880 after basic rate tax they are treated as having paid £3,600. The money is of course not available to you until you retire but the fund could be used as security for a mortgage before then.
• National Savings & Investments - Children's Bonus Bonds for under 16s.

Example

1. Ross is 12 years old. On his last birthday his grandmother made a gift to him of £15,000, which she had invested in a building society in his name. During 2010/11 the interest received was £600.
2. Ross's father sold a house he had inherited from his grandfather in his will. He used part of the money to make a gift to his son on his birthday of £25000. The money was invested in an interest paying bank account and the interest received for 2010/11 is £1,000.
3. Ross's mother invests part of her wages every month by paying into a pension policy she has set up for him.
4. Ross has no other income apart from the above amounts.

1. The income of £600 from the money that his grandmother has invested for him is treated as Ross's income in his own right. The amount Ross receives of £600 has had tax taken off at 20% before it was paid to him - so the total amount of interest for the year is £750 = £600 plus tax taken off of £150. Ross can use his tax-free allowance of £6,475 against the interest and reclaim the £150 tax.

   Ross's grandparents cannot reclaim the tax for him - his parents will need to do that using form R40.

   However as his income is less than his tax-free allowance - Ross is a non-taxpayer, so interest can be paid without tax being taken off. Either of his parents can fill in the registration form - form R85 which is available from the Revenue website or from the building society. They can then hand the form in to the building society who will then pay the interest without any tax being taken off. The building society may also be able to repay any tax already taken off in the year.

2. As the income on the account set up by his parent is more than £100, the £1,000 interest from the bank account will be treated as Ross's father's income and he will need to pay any extra tax should some be due. Ross will not be able to reclaim any of the tax taken off this amount.

   In this case it is not possible to register using form R85 to receive the interest with no tax taken off as the income is treated as Ross's fathers income and he is a taxpayer.

3. It is possible for Ross's mother to make payments of up to £2,880 to a pension scheme set up for him with no tax consequences.

Property

If your parents buy a property for you to use - if they remain the owners they will be taxed on any rent you pay them.

If they give you the property outright there may also be implications from the point of view of other taxes such as Inheritance tax and Capital Gains tax. They may also have had to pay Stamp Duty on the purchase.

Generally as long as the property is your main residence (your main home for tax purposes) whilst you or your parents own it, it will be exempt from Capital Gains Tax when it is sold. However the rules are complicated and your parents should get advice before taking any action.

You can get basic guides on Inheritance Tax and Capital Gains Tax by clicking the relevant links.

Any rents you receive from renting out rooms in the property to other students will be taxable as your income but if you treat the house as your own home, you may be able to claim some relief under the 'rent-a-room' rules. You can find out more about this by looking at two Revenue links Letting a room in your home and Rent a Room Scheme .