Tax and gifts

jbmagpie

I am retired and have surplus income. My assets are already over the Inheritance Tax limit. If I give my grown up children my surplus income will they be required to declare it and pay tax on it.

Cleasby_2

There is no question of your children having to pay income tax on the surplus income which you give to them.

The danger is that if your gifts do not satisfy the conditions set out in s21(1) IHTA 1984 they might not be exempt from inheritance tax.

For your gifts to be exempt from inheritance tax they must

1. be demonstrably affordable out of income

2. not cause your standard of living to fall and

3. form part of a regular pattern of giving.

I recommend you set about creating records to demonstrate that these conditions are satisfied.

You state your estate will be chargeable to inheritance tax. It follows therefore that after your death your children will have to provide an inheritance tax return to HMRC. In this return they must declare all gifts made within seven years of your death, including those which are covered by the exemption. HMRC will probably seek to establish whether all the conditions for the exemption have been met. If you have kept the necessary records your children will have little difficulty satisfying HMRC that the exemption is due. If you haven't kept the records they will struggle.

This exemption is one of the most valuable exemptions available yet one of the most underused. If only people organised themselves better they could save significant amounts of tax.

For practical help with implementation contact a Chartered Tax Adviser local to you.

To find a Chartered Tax Adviser go to

https://www.tax.org.uk