Inheritance Tax question

getmore4less

Tom99 wrote: »

[FONT=Verdana, sans-serif]The misleading part is what comes next :

[/FONT] “[FONT=Verdana, sans-serif]Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.[/FONT]
[FONT=Verdana, sans-serif]4 to 5 years = 24%”

[/FONT] [FONT=Verdana, sans-serif]Taking the above at face value a single gift of say £100k, 4 years before death, would be taxed at 24%.

[/FONT] [FONT=Verdana, sans-serif]But that is not what actually happens, the £100k is deducted from the nil rate band and the taxable estate increases by £100k taxed at 40%. So the gift 4 years ago is still taxed at an effective rate of 40% not 24%.[/FONT]

You have to read the 2 bits together, it is is obvious they follow on from each other

it is only misleading to those that have ignored the "If there’s Inheritance Tax to pay"

Tom99

getmore4less wrote: »

You have to read the 2 bits together, it is is obvious they follow on from each other

it is only misleading to those that have ignored the "If there’s Inheritance Tax to pay"

[FONT=Verdana, sans-serif]If the estate on death was over the IHT nil rate band then the question “If there is Inheritance Tax to pay” would be true, but the effective tax on the £100k gift made 4 years ago would be 40% not the 24% the guidance suggests.

[/FONT] [FONT=Verdana, sans-serif]There are no circumstances in which the whole of a 4 year old gift would be taxed at 24% which is what is implied by that guidance note.

[/FONT] [FONT=Verdana, sans-serif]There is also no way of implying from that guidance note that all gifts within 7 years are 1st set of against the nil rate band and that it is only any excess above that sum which is subject to taper relief. Unless you were already aware of that fact you could not deduce it from that note.[/FONT]

Cardew

I still have difficulty in the definition of 'surplus income' and 'savings'.

Both my wife and I have separate interest earning current accounts which are used for virtually all our various incomes and outgoings. When a balance surplus to our requirements is built up, we gift it to the children. The amounts and frequency are variable.

To my mind this is quite clearly gifting surplus income. However I fail to see the difference between us putting our surplus income in a saving account and, say, annually making a gift from that account. Obviously we would need to have made a record of our income and outgoings for that year.

Tom99

Cardew wrote: »

I still have difficulty in the definition of 'surplus income' and 'savings'.

Both my wife and I have separate interest earning current accounts which are used for virtually all our various incomes and outgoings. When a balance surplus to our requirements is built up, we gift it to the children. The amounts and frequency are variable.

To my mind this is quite clearly gifting surplus income. However I fail to see the difference between us putting our surplus income in a saving account and, say, annually making a gift from that account. Obviously we would need to have made a record of our income and outgoings for that year.

[FONT=Verdana, sans-serif]If you want to claim gifts from income you should probably do a couple of things now:

[/FONT]

• [FONT=Verdana, sans-serif]Make a record, by way of a letter to the beneficiaries say, that you intend to gift from income and roughly how much and when you expect to make those gifts.[/FONT]
• [FONT=Verdana, sans-serif]Keep an ongoing record of income and expenditure in the form of items 20/21/22 on Form IHT403 so that you executor has all the detail to hand later on.[/FONT]

getmore4less

have a read through the HMRC manual, it can help clarify in your head how HMRC interpret the rules.

it all starts here for lifetime transfers(gifts)
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14000

The scope of the rules may be non obvious.
eg. if you have 4 kids you can gift from income to each in turn over 4 years and those gifts would still count.

More difficult is when does surplus income become capital this is covered by
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250