Gifts from Income - ISA income

Linton

pip895 wrote: »

That makes sense but seems to conflict with what the solicitor was saying.. I will try and get it confirmed when I speak to dads IFA.

Much in this area is not fully defined by the law which seems to restrict itself to general principles although at least one issue has been resolved by the judges. So dont be surprised if the IFA cannot give a definitive answer. Unless you want your fathers IHT to become an important test case perhaps it would be best to steer well clear of anything remotely dodgy.

getmore4less

Tom99 wrote: »

Income within an ISA is the same as income outside an ISA so both can be taken into account when calculating gifts from surplus income over expenditure.
Reinvesting income does not count as expenditure.

You can't give it away as surplus and invest it.

Tom99

getmore4less wrote: »

You can't give it away as surplus and invest it.

ISA income counts as income. The amount you gift can come from another source, withdraw non ISA savings for example. As long as total income is greater that total expenditure you have a surplus, where you actually withdraw the gift money from does not matter.

[FONT=Verdana, sans-serif]For example:[/FONT]
[FONT=Verdana, sans-serif]You have £20,000 non ISA Income, you have £10,000 ISA income which is reinvested.[/FONT]
[FONT=Verdana, sans-serif]Your expenditure is £20,000. Therefore you have £10,000 surplus income.[/FONT]
[FONT=Verdana, sans-serif]You make a £10,000 gift by withdrawing money from a non ISA account, selling you car or whatever.[/FONT]

Linton

Tom99 wrote: »

ISA income counts as income. The amount you gift can come from another source, withdraw non ISA savings for example. As long as total income is greater that total expenditure you have a surplus, where you actually withdraw the gift money from does not matter.

[FONT=Verdana, sans-serif]For example:[/FONT]
[FONT=Verdana, sans-serif]You have £20,000 non ISA Income, you have £10,000 ISA income which is reinvested.[/FONT]
[FONT=Verdana, sans-serif]Your expenditure is £20,000. Therefore you have £10,000 surplus income.[/FONT]
[FONT=Verdana, sans-serif]You make a £10,000 gift by withdrawing money from a non ISA account, selling you car or whatever.[/FONT]

If you sell your car to give the money away surely you are disposing of assets which precludes it being a gift from income.

Tom99

Linton wrote: »

If you sell your car to give the money away surely you are disposing of assets which precludes it being a gift from income.

You have to demonstrate you have surplus income over expenditure, that's all. You don't have to show that you very specifically used an actual income source as the gift.
Typically you would not remove income from an ISA but that does not prevent you counting that income.

Sea_Shell

Tom99 wrote: »

You have to demonstrate you have surplus income over expenditure, that's all. You don't have to show that you very specifically used an actual income source as the gift.
Typically you would not remove income from an ISA but that does not prevent you counting that income.

So would I be right in thinking that if you can demonstrate (prove) that there was surplus GAINS overall then that's what counts.

e.g. Assuming no other earned income. During a given tax year, a persons overall portfolio of investments/savings increased, on paper, by say £30,000, and they only spent £20,000 (from cash), then they could, if they wanted, give that SURPLUS £10,000 as a gift without it affecting IHT?

Does it literally go tax year by tax year. What would happen if in the next tax year, their portfolio showed a £10,000 net loss??

Or have I got that completely wrong?

Tom99

Sea_Shell wrote: »

So would I be right in thinking that if you can demonstrate (prove) that there was surplus GAINS overall then that's what counts.

e.g. Assuming no other earned income. During a given tax year, a persons overall portfolio of investments/savings increased, on paper, by say £30,000, and they only spent £20,000 (from cash), then they could, if they wanted, give that SURPLUS £10,000 as a gift without it affecting IHT?

Does it literally go tax year by tax year. What would happen if in the next tax year, their portfolio showed a £10,000 net loss??

Or have I got that completely wrong?

No. It is surplus income not gain. In a S&S ISA dividends from funds, shares, bonds etc count as income but any gain or loss on the underlying investment is not income.
Also the gifts from surplus income have to be regular, ie there is an intention to pay regular gifts out of surplus income each year. A one off gift cannot count as surplus income.

pip895

Tom99 wrote: »

A one off gift cannot count as surplus income.

I was wondering about that - Dad used to sit at his PC and look at his bank account and think - I have a surplus - too much money - so £1000 would turn up in my bank account + my sisters to. He also decided to give a friend £1000 on one occasion as she was a bit short and needed a new boiler.
I can demonstrate that it was out of income - no cash taken out of savings which went up year on year, but as it was a one off gift so would it count?
Also he usually gave the Grandkids small cash gifts when gong on holiday and for birthdays etc. but on one occasion he gave them all a few thousand to put in an isa. Would we be able to claim that?? If not would it be necessary to record all the small cash gifts (<£200)in that financial year to??

Tom99

'HMRC adopts the dictionary definition for “normal” which means: regular, typical, habitual or usual.'
Given your description it sounds like the gifts may well fit this definition. If you have enough detail re the figure and you think it may save IHT there is no harm in making a claim.

Linton

Normal expenditure for gifts is something the courts have ruled on. At the end of each tax year the deceased did her accounts and gave all her surplus income to her sons. HMRC claimed this did not meet the requirements but the judge disagreed.