gifting money

Keep_pedalling

jennifernil wrote: »

How does that work if you save up, out of income, to buy something like a new car?

E.g. using round figures, if we have a total income after tax of £45k and only use £30k for all our usual spending, then gift, to children and grandchildren a total of say £400 per month out of income, we would still have around £10k per annum left unused.

We then save that for things like a new car or a necessary home repair, and would eventually have to use that "saved" money to pay for the car or whatever.

The only thing that really counts is your annual expenditure, If for example you spend £21,000 every 3 years on a new car then the 3 year average spend is £7,000.

If as a couple you are gifting £400 per month you don't need to worry about such complexity as that falls under your normal £3000 annual allowances.

jennifernil

No, in this case we are also using our annual £3k each allowances.

Keep_pedalling

jennifernil wrote: »

No, in this case we are also using our annual £3k each allowances.

In that case you don't have £10k excess income (unless you already included that in your £30k annual spend), because that comes out if your expenditure as well.

In general you don't use both allowances at the same time. The gifts out of income allowance is really for people who have excess income that will simply continue to increase the size of their estate because they never have the need to touch their savings. if that excess income exceeds your annual allowance you would use that, if not simply use the annual allowances.

PS are you aware of how the primary residence nil rate band will effect you?

jennifernil

Yes we are, thanks for asking.

Where does it say that the £3k each annual gift allowance forms part of our normal annual expenditure?

As far as we are concerned we are gifting that out of accumulated savings.....money we have inherited, money we have saved, money from pension lump sums.

If we were not making these gifts our savings would just continue to increase as we are not big spenders. We buy a decent new car about every 10 years, holidays and all other monthly/annual expenditure items are included in the £30k, in fact we probably spend a bit less than that.

Keep_pedalling

Gifts whether, they are small Christmas or birthday gifts, or large cash sums are considered expenditure regardless of where the assets came to pay for the gifts.

It sounds like you certainly have the spare income to gift in excess of £3000 a year from excess income, but you do need to account for stuff like new cars, and ather big ticket items like new white goods or house repairs.

You have taken account of the new residence nil rate band, so it sounds like your joint estate is in excess of £1M so you should consider reducing its value with larger one off gifts. These will take 7 years to fall out of your estate however providing you are currently in good health you can cover any IHT tax falling on these gifts if you unfortunately die early with a second death term insurance.

Might also be worth talking to an IFA who is qualified to deal with inheritance and tax planning.

loulou41

I am not sure how gifts out income work. I contribute to grandson's education by putting £500 a monthly in his account and a yearly junior isa from surplus income. Doing a practice run with IHT form 205 I found I need to declare this on the for.

Keep_pedalling

loulou41 wrote: »

I am not sure how gifts out income work. I contribute to grandson's education by putting £500 a monthly in his account and a yearly junior isa from surplus income. Doing a practice run with IHT form 205 I found I need to declare this on the for.

If you can get away with using IHT205 then your estate must be below the IHT threashold, so unless the value of your estate is close moving into IHT territory then claiming gifts from income will make no difference to the outcome. The important thing is to keep god records of all those gifts to make things simple for your executors.

If you own your home you should look at using form IHT400, rather than 205 as 205 has not been updated to account for the primary residence nil rate band so there is no where to claim it on that form.

Biggles

Keep_pedalling wrote: »

The important thing is to keep god records of all those gifts.

Saved in the 'cloud', presumably?