Gifts exempt IHT

Cardew

In addition to the various gifts exempt IHT(£3k pa, £250, etc etc)
There is provision to give away funds where your income exceeds your expenditure.

Now I always understood that to mean if you had income of, say, £50k pa and outgoings of, say, £30k pa you could give away £20k which would be IHT exempt. Other than the £3k etc, you couldn't give away any savings - unless you lived for 3 to 7 years after that gift.

However someone pointed out to me a Saga Personal Finance magazine that gives an entirely different interpretation of IHT exempt gifts.

https://www.saga.co.uk/magazine/money/personal-finance/inheritance/how-to-reduce-inheritance-tax

In particular this paragraph.

3. Gifts if you’re a high earner
Wealthy people can also give away a proportion of their income, providing it doesn’t impact their lifestyle. So if, for example, your partner dies leaving you a sizable chunk of savings or money from cashed in investments, you could give some or all of this money away, as it would make no difference to your life.

Surely that is plain wrong? Otherwise I could have income exceeding expenditure and give away the £1 billion I have in investments.

Owain_Moneysaver

AIUI it is gifts from income.

So if you have £1bn invested in 2.5% p.a. bonds, you could (I think) give away up to £25,000,000 each year from interest income received.

But as soon as you start to give away the £1bn capital, it's a taxable gift for IHT.

Obviously if you actually have £1bn (a) please tell me how you did it; and (b) take specialist advice on IHT planning!!!

Malthusian

Yes, they are wrong. A one-off gift from a one-off windfall is not normal expenditure and not automatically exempt from IHT.

What you should do in that position is use a Deed of Variation.

A good example of why not to take tax planning advice from unqualified and unregulated journalists.

Now I always understood that to mean if you had income of, say, £50k pa and outgoings of, say, £30k pa you could give away £20k which would be IHT exempt. Other than the £3k etc, you couldn't give away any savings - unless you lived for 3 to 7 years after that gift.

The "3 to 7" part only applies if you give away more than £325,000 which falls back into the estate, and then only to the excess above it. Otherwise it's 7 years.

You can give away as much as you like. Your estate just has to pay IHT on the gifts (that it would have paid anyway if you'd held onto them) if they aren't exempt.

Cardew

Owain_Moneysaver wrote: »

AIUI it is gifts from income.

So if you have £1bn invested in 2.5% p.a. bonds, you could (I think) give away up to £25,000,000 each year from interest income received.

But as soon as you start to give away the £1bn capital, it's a taxable gift for IHT.

Obviously if you actually have £1bn (a) please tell me how you did it; and (b) take specialist advice on IHT planning!!!

Clearly you can give away the interest income that is in excess of your expenditure but the wording states 'your partner dies leaving you a sizable chunk of savings or money from cashed in investments, you could give some or all of this money away'

P.S.
I haven't actually got the £1billion yet, but a 25 year old Nigerian heiress is coming to see me soon with a foolproof plan - perhaps she is an IFA?

relaxtwotribes

AIUI a one-off gift out of income will NOT qualify as exempt from IHT unless it is the first of a series of regular gifts (the donor dying before subsequent gifts are made). Written evidence of intention to make regular gifts out of income would be extremely beneficial in such a case.