Examples / templates of how to use you annual ‘Gift’ allowance with your child/children ?

parkerc

Hi
I’ve been advised that my wife and I should look to use our annual HMRC ‘Gift’ allowance of £3k and start moving some money over to our two children, however it’s not clear to me how exactly we should do that ? Some have suggested that we must write a formal letter, making it clear why we are doing it etc. and include an actual cheque, and then others say we could just do It all online, via an email and just transfer the money over ?

Also as we have not used our previous annual allowance from 2019-2020, I understand we can still  use that ‘gift’ too, which means my wife and I could give £6k each to our children (£12k in total) , but do we Still need to do that in separate batches of £3k, with a specific letter/email for each? Or worse do my wife and I have to give £1.5k to each child, for each tax year etc.

I’m sure it is supposed to be easier than this, but I have no idea what to write to ensure it’s official - therefore if anyone can provide an actual example (or a template) of the email or letter we should each use, it would be much appreciated. - Thank you !

uknick

If you expect your estate at time of death, with any lifetime gifts, to attract IHT it is best to keep an audit trail of any gifts to help your executor to manage your estate with regard to any taxes due when you pass away. 

However, i'm not sure I'd go as far as official letters.  I'd make it a bank transfer and then keep a note of the transfer with your valuable papers, such as mortgage details, life insurance documents, details of investments, bank accounts etc. explaining the gift.

  

xylophone

If you have a joint account, just give £6000 to each child from that account and leave a note with your wills stating that these were gifts to cover the allowance  for 19/20 and  20/21.

Otherwise, one parent gifts to one child from a sole account and the second parent gifts to the other child from a sole account and a note is left in the same way.

Keep_pedalling

All we do is keep a spreadsheet of all gifts given over the last 7 years, and keep an updated copy with copies of our wills to make it simple for our executors. 

Mickey666

Just do it. 

Any possible implications that MIGHT arise will only occur after your death and an executor is dealing with your estate.  Since you'll be dead then you can't possibly get into any trouble, so forget worrying about that  

As for any IHT implications on your estate, well the executor will either find the gifts or they won't.  If they find them AND it affects any IHT payable, then the executor will pay it out of the estate - just as if you'd left a pile of letters documenting the gifts. 

If the executor doesn't find them . . . . well, that's not your problem, and it won't be a problem for anyone who has received the gifts.

Of course, this is not 'by the book' formal advice you understand

getmore4less

Or do what many people do don't bother for the smaller stuff that just stops your estate growing and record the big ones that reduce your capital.

2 people with house and kids estate needs to go over £1m to worry.

Then it is often better to not bother with the trickle  offload a decent chunk. 

parkerc

Thanks all, so am I over thinking all this then, as it sounds ripe for abuse - sadly I’m someone who wants to do things by the book. 

Humour me, if there was the ‘gold standard’ way of doing this, what would the process be and exactly what words should be used/recorded etc ?

Keep_pedalling

Mickey666 said:

Just do it. 

Any possible implications that MIGHT arise will only occur after your death and an executor is dealing with your estate.  Since you'll be dead then you can't possibly get into any trouble, so forget worrying about that  

As for any IHT implications on your estate, well the executor will either find the gifts or they won't.  If they find them AND it affects any IHT payable, then the executor will pay it out of the estate - just as if you'd left a pile of letters documenting the gifts. 

If the executor doesn't find them . . . . well, that's not your problem, and it won't be a problem for anyone who has received the gifts.

Of course, this is not 'by the book' formal advice you understand

Might not be their problem but it is totally irresponsible making your executor’s job ten times harder because you could not be arsed to keep decent records.

badger09

parkerc said:

Thanks all, so am I over thinking all this then, as it sounds ripe for abuse - sadly I’m someone who wants to do things by the book. 

Humour me, if there was the ‘gold standard’ way of doing this, what would the process be and exactly what words should be used/recorded etc ?

There isn't a 'gold standard', but in fairness to your Executors, something along the lines of:
Date       Tax Year        Amount     Given by      Given to     Method
10/8/20   2020/2021    £3000       Mr Parker     Child A       Bank transfer from Lloyds xxxxxx
10/8/20   2020/2021    £3000       Mr Parker     Child B       Bank Transfer from Lloyds xxxxxx
10/8/20   2020/2021    £3000       Mrs Parker   Child A       Bank Transfer from Lloyds yyyyyy
10/8/20   2020/2021    £3000       Mrs Parker   Child B       Bank Transfer from Lloyds yyyyyy

12/1/21   2021/2022    £1500       Mr Parker     Child A       Bank Transfer from Lloyds xxxxxx
15/6/21   2021/2022    £1500       Mr Parker     Child B       Bank Transfer from Lloyds xxxxxx
16/5/21   2021/2022    £500         Mrs Parker   Child B       Bank Transfer from TSB zzzzzz
21/7/21   2021/2022    £400         Mrs Parker   Child B       Cheque 10323 from TSB zzzzzz
11/9/21   2021/2022    £600         Mrs Parker   Child B       Bank Transfer from TSB zzzzzz
19/9/21   2021/2022    £1500       Mrs Parker   Child A       Bank Transfer from TSB zzzzzz
etc
Will be ample for them. Otherwise, in theory at least, they ought to go through your bank etc statements for the previous 7 years looking for gifts. If your Executor is familiar with your financial affairs, its quite easy to reconstruct, but I sympathise with any Executor who is starting from scratch. Obviously, this is largely irrelevant if there's definitely no IHT liability.

badger09

Keep_pedalling said:

Mickey666 said:

Just do it. 

Any possible implications that MIGHT arise will only occur after your death and an executor is dealing with your estate.  Since you'll be dead then you can't possibly get into any trouble, so forget worrying about that  

As for any IHT implications on your estate, well the executor will either find the gifts or they won't.  If they find them AND it affects any IHT payable, then the executor will pay it out of the estate - just as if you'd left a pile of letters documenting the gifts. 

If the executor doesn't find them . . . . well, that's not your problem, and it won't be a problem for anyone who has received the gifts.

Of course, this is not 'by the book' formal advice you understand

Might not be their problem but it is totally irresponsible making your executor’s job ten times harder because you could not be arsed to keep decent records.

Couldn't agree more.
If as Executor, you knew the person very well and were familiar with their finances (as I was for my late sister), its very easy. In any other situation, it could be like looking for potential needles in multiple haystacks.

silvercar

If you give gifts out of income they are exempt from IHT.

One of the most valuable exemptions for people with income surplus to their needs is the exemption for 'normal expenditure out of income' (section 21 of the Inheritance Tax Act 1984).

For this exemption to apply it must meet three conditions:

• It was made out of income
• It was part of the 'normal expenditure' of the donor
• The donor was left with sufficient income to maintain their standard of living.