IHT Gifts from Income
Options
Niggles
Posts: 75 Forumite
in Cutting tax
In a recent post I read the following statement "Gifts from income does not refer to a standard of living, gifts have to be made from surplus income, so for example no one can claim they are gifting from income if at the same time they are drawing from savings to pay for holidays, cars or other big ticket items."
I am in the priviledged position of being retired with more than enough income to provide all that I require to live comfortably. I give regularly to charity as well as my children. Any remaining income is put into a savings account, which is then raided to pay for big ticket items such as described above.
I had always assumed that as long as I maintained my SoL then all my regular outgoings, whether to a charity or my children would be considered coming out of surplus income, however the comment above seems to imply that removing money from my regular savings pot might invalidate this assumption.
So my question is, does putting my remaining surplus income into a savings pot mean that this money is now no longer surplus?
I am in the priviledged position of being retired with more than enough income to provide all that I require to live comfortably. I give regularly to charity as well as my children. Any remaining income is put into a savings account, which is then raided to pay for big ticket items such as described above.
I had always assumed that as long as I maintained my SoL then all my regular outgoings, whether to a charity or my children would be considered coming out of surplus income, however the comment above seems to imply that removing money from my regular savings pot might invalidate this assumption.
So my question is, does putting my remaining surplus income into a savings pot mean that this money is now no longer surplus?
0
Comments
-
Charity is exempt anyway so they can be gifts from capital giving more income for the others "gifts from income"
The transition of a surplus income to capital is fluid with a reasonable window to accumulate and spend.
One other key thing about gifts from income is they need to be regular which has its own lose definition.0 -
In a recent post I read the following statement "Gifts from income does not refer to a standard of living, gifts have to be made from surplus income, so for example no one can claim they are gifting from income if at the same time they are drawing from savings to pay for holidays, cars or other big ticket items."
Government description of Gifts from Income does refer to standard of living. See under "Exempted Gifts" here.I am in the priviledged position of being retired with more than enough income to provide all that I require to live comfortably. I give regularly to charity as well as my children. Any remaining income is put into a savings account, which is then raided to pay for big ticket items such as described above.
I had always assumed that as long as I maintained my SoL then all my regular outgoings, whether to a charity or my children would be considered coming out of surplus income, however the comment above seems to imply that removing money from my regular savings pot might invalidate this assumption.
So my question is, does putting my remaining surplus income into a savings pot mean that this money is now no longer surplus?
You can effectively carry forward up to 2 years income to finance "Gifts from income". There are no definitive rules but HMRC may regard income as turning into capital after a couple of years. Capital is not usable for Gifts from Income. So you would have to show that overall you have received more income than you have spent within the period. See http://www.pruadviser.co.uk/content/knowledge/technical-centre/normal-expenditure-facts/ for more detailed info.0 -
Reducing the amount you save pm will be fine.0
-
Government description of Gifts from Income does refer to standard of living. See under "Exempted Gifts" here.
It was my statement that was being quoted by the OP and I probably should have worded it better as HMRC do use that phrase in the link you provided and the manuals
Unfortunately that HMRC page is a simplification of what it says in the manual, but written by an idiot who has missed of some vital info. If you go by that any PET gift is subject to a sliding scale over the seven years which is wrong for 99.9% of gifts as it only actually applies To people who gift over £325k and only to the part above that.
With regards to gifts from income the manual says this.
The exemption under IHTA84/S21 applies where the taxpayer can show that a gift (transfer of value):
- formed part of the transferor’s normal expenditure
- was made out of income
- and left the transferor with enough income for them to maintain their normal standard of living
A gift must meet all of the conditions to qualify for the exemption and must not fall within any of the exceptions. Part of a single gift may qualify for the exemption, the balance being chargeable or being exempt under another provision.
The third condition makes it clear that not only must they be able to maintain their standard of living, but you must maintain it from income alone if you want to claim the exemption. We have enough savings put by to maintain our standard of living even if we give a large portion of our income away, but unfortunately our estates would not be able to claim the income exemption, which is why we rely on our annual allowances and PET gifts backed up by term insurance in case we snuff it early.
When we give up buying new cars and expensive holidays we might be able to take advantage, providing those expenses are not replaced with care costs.0 -
Yes as Keep Pedalling says. One extra point occurs to me to answer the op fully....
It shouldnt matter if the money happens to be kept in a savings account. What is important is the income received/money spent calculation. Also in the documentation HMRC make a point of sayimg that the giving should be part of your normal ongoing expenditure - ie one-off gifts dont count but steady payments to children for example are fine.
You wont get definitive answers to all the questions you may have. It appears the legislation is unclear and the details are still being firmed up through case law. So I suggest you dont try and be too "clever".0 -
One thing with any form of gifting, is for the sake of your executor please keep good records of your gifts and keep an up to date copy with your will if possible. This is particularly important with gifting from income which is somewhat more complex than using your allowances or PET gifts.
Gifts from income are really only useful if you have in excess of £3000 per year use, and even then if you are seriously over your IHT limit larger PET gifts are probably a better option.0 -
Hi all, I have been away but thanks for all your comments. Very Helpful0
-
Can anyone point me to information about who the gifts can go to? Does it have to be blood relatives or charities?
If my daughter were to pass away, can I carry on giving the same gift of surplus income to her spouse? ( father of my grandchildren).0 -
Can anyone point me to information about who the gifts can go to? Does it have to be blood relatives or charities?
If my daughter were to pass away, can I carry on giving the same gift of surplus income to her spouse? ( father of my grandchildren).
Gifts can be to anyone you like.0 -
Can anyone point me to information about who the gifts can go to? Does it have to be blood relatives or charities?
If my daughter were to pass away, can I carry on giving the same gift of surplus income to her spouse? ( father of my grandchildren).
Yes -you can.
https://www.gov.uk/inheritance-tax/gifts0
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.3K Work, Benefits & Business
- 608.1K Mortgages, Homes & Bills
- 173.1K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards