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

Mickey666

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.

Nonsense!

Imagine two estates, A & B.

Executor A finds there are no records of any gifts in the past 7 years.

Executor B find there are letters recording, say, three gifts in the past 7 years.

Which executor has the easiest job sorting out the estate?

Well, you might argue that executor B has been given a head start but does that mean they can simply rely on those three letters as being the whole story and therefore not bother to check for any other PETs?  I'd say not. 

So, in practice, both executors must still satisfy themselves (and the taxman) that there are no other failed PETs within the estate on which IHT may be due and that will involve going through all the estate's affairs anyway.

Unless I've missed something here?

Mickey666

silvercar said:

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. 

I've often wondered about that rule and its definition of 'income' and 'normal expenditure'.

Supposing someone has retired with just a big pot of money that they gradually draw down as and when they need it.  So their monthly 'income' varies wildly depending if they buy a new car or go on an expensive holiday, which they regularly do, while their pot of money remains obviously adequate for their forseeable future.

Could it be argued their their 'income' was whatever they decide to drawdown that month and that their 'normal expenditure' was highly variable?

This sort of thing is a general frustration of mine as far as the tax system is concerned.  Rules should be rules, not a sort of rule that is open to interpretation.

Keep_pedalling

Mickey666 said:

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.

Nonsense!

Imagine two estates, A & B.

Executor A finds there are no records of any gifts in the past 7 years.

Executor B find there are letters recording, say, three gifts in the past 7 years.

Which executor has the easiest job sorting out the estate?

Well, you might argue that executor B has been given a head start but does that mean they can simply rely on those three letters as being the whole story and therefore not bother to check for any other PETs?  I'd say not. 

So, in practice, both executors must still satisfy themselves (and the taxman) that there are no other failed PETs within the estate on which IHT may be due and that will involve going through all the estate's affairs anyway.

Unless I've missed something here?

What you are missing is that people who keep gift records do so to make life easier for their executors. As long as the records had been kept up to date I would not go trawling through 7 years of bank statements, and the number of times people sw

I record every PET and gifts covered by annual exemption If for some reason I made no gifts in any financial year I would record that as well so the executors will know it is not an oversight. 

Jeremy535897

Mickey666 said:

silvercar said:

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. 

I've often wondered about that rule and its definition of 'income' and 'normal expenditure'.

Supposing someone has retired with just a big pot of money that they gradually draw down as and when they need it.  So their monthly 'income' varies wildly depending if they buy a new car or go on an expensive holiday, which they regularly do, while their pot of money remains obviously adequate for their forseeable future.

Could it be argued their their 'income' was whatever they decide to drawdown that month and that their 'normal expenditure' was highly variable?

This sort of thing is a general frustration of mine as far as the tax system is concerned.  Rules should be rules, not a sort of rule that is open to interpretation.

See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250 et seq.

WaywardDriver

Mickey666 said:

silvercar said:

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. 

I've often wondered about that rule and its definition of 'income' and 'normal expenditure'.

Supposing someone has retired with just a big pot of money that they gradually draw down as and when they need it.  So their monthly 'income' varies wildly depending if they buy a new car or go on an expensive holiday, which they regularly do, while their pot of money remains obviously adequate for their forseeable future.

Could it be argued their their 'income' was whatever they decide to drawdown that month and that their 'normal expenditure' was highly variable?

This sort of thing is a general frustration of mine as far as the tax system is concerned.  Rules should be rules, not a sort of rule that is open to interpretation.

Assuming that big pot of money isn't under your mattress and you have sufficient other income for your needs, it should be producing income that could be gifted.
Re car every 4 years say, I wouldn't see this as normal expenditure if bought with cash but would be if PCP/HP paid monthly.
Similarly if once-in-a-lifetime holiday then not normal expenditure but would be if annual occurrence.

Keep_pedalling

WaywardDriver said:

Mickey666 said:

silvercar said:

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. 

I've often wondered about that rule and its definition of 'income' and 'normal expenditure'.

Supposing someone has retired with just a big pot of money that they gradually draw down as and when they need it.  So their monthly 'income' varies wildly depending if they buy a new car or go on an expensive holiday, which they regularly do, while their pot of money remains obviously adequate for their forseeable future.

Could it be argued their their 'income' was whatever they decide to drawdown that month and that their 'normal expenditure' was highly variable?

This sort of thing is a general frustration of mine as far as the tax system is concerned.  Rules should be rules, not a sort of rule that is open to interpretation.

Assuming that big pot of money isn't under your mattress and you have sufficient other income for your needs, it should be producing income that could be gifted.
Re car every 4 years say, I wouldn't see this as normal expenditure if bought with cash but would be if PCP/HP paid monthly.
Similarly if once-in-a-lifetime holiday then not normal expenditure but would be if annual occurrence.

Normal expenditure in this case is defined as what is normal for the donor not the average person. If someone buys a new car on a regular basis, whether that is every year or every 4 years it is normal expenditure. 

Mickey666

Keep_pedalling said:

Mickey666 said:

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.

Nonsense!

Imagine two estates, A & B.

Executor A finds there are no records of any gifts in the past 7 years.

Executor B find there are letters recording, say, three gifts in the past 7 years.

Which executor has the easiest job sorting out the estate?

Well, you might argue that executor B has been given a head start but does that mean they can simply rely on those three letters as being the whole story and therefore not bother to check for any other PETs?  I'd say not. 

So, in practice, both executors must still satisfy themselves (and the taxman) that there are no other failed PETs within the estate on which IHT may be due and that will involve going through all the estate's affairs anyway.

Unless I've missed something here?

What you are missing is that people who keep gift records do so to make life easier for their executors. As long as the records had been kept up to date I would not go trawling through 7 years of bank statements, and the number of times people sw

I record every PET and gifts covered by annual exemption If for some reason I made no gifts in any financial year I would record that as well so the executors will know it is not an oversight. 

I understand where you're coming from, but I'm suggesting there is no way that the executor can be certain that the deceased's records are correct or not, or even if they are misleading - either accidentally or wilfully. 

Is it really reasonable for an executor to take any such records at face value?  OK, so you leave a note about a gift 6 years ago - sure, the executor can explicity check for just that amount at that time.  Then you leave another note stating no gifts in the following year - is it ok for the executor to simply believe that?  What if you were deliberately trying to hide a large gift that year?  Surely the executor has an explicit duty to VERIFY everything otherwise they could be aiding and abetting IHT fraud. 

What's the executor's legal duty and liability in this respect?

Mickey666

Keep_pedalling said:

WaywardDriver said:

Mickey666 said:

silvercar said:

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. 

I've often wondered about that rule and its definition of 'income' and 'normal expenditure'.

Supposing someone has retired with just a big pot of money that they gradually draw down as and when they need it.  So their monthly 'income' varies wildly depending if they buy a new car or go on an expensive holiday, which they regularly do, while their pot of money remains obviously adequate for their forseeable future.

Could it be argued their their 'income' was whatever they decide to drawdown that month and that their 'normal expenditure' was highly variable?

This sort of thing is a general frustration of mine as far as the tax system is concerned.  Rules should be rules, not a sort of rule that is open to interpretation.

Assuming that big pot of money isn't under your mattress and you have sufficient other income for your needs, it should be producing income that could be gifted.
Re car every 4 years say, I wouldn't see this as normal expenditure if bought with cash but would be if PCP/HP paid monthly.
Similarly if once-in-a-lifetime holiday then not normal expenditure but would be if annual occurrence.

Normal expenditure in this case is defined as what is normal for the donor not the average person. If someone buys a new car on a regular basis, whether that is every year or every 4 years it is normal expenditure. 

Yes, that would be my interpretation.  If someone has a 10-15 year track record of erratic annual expenditure while still leaving a large amount in their 'pot' then that would be 'normal' for that person.

But the real issue is the subjectivity of all this and it's not an argument I'd want to have with the taxman!

Keep_pedalling

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

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.

Nonsense!

Imagine two estates, A & B.

Executor A finds there are no records of any gifts in the past 7 years.

Executor B find there are letters recording, say, three gifts in the past 7 years.

Which executor has the easiest job sorting out the estate?

Well, you might argue that executor B has been given a head start but does that mean they can simply rely on those three letters as being the whole story and therefore not bother to check for any other PETs?  I'd say not. 

So, in practice, both executors must still satisfy themselves (and the taxman) that there are no other failed PETs within the estate on which IHT may be due and that will involve going through all the estate's affairs anyway.

Unless I've missed something here?

What you are missing is that people who keep gift records do so to make life easier for their executors. As long as the records had been kept up to date I would not go trawling through 7 years of bank statements, and the number of times people sw

I record every PET and gifts covered by annual exemption If for some reason I made no gifts in any financial year I would record that as well so the executors will know it is not an oversight. 

I understand where you're coming from, but I'm suggesting there is no way that the executor can be certain that the deceased's records are correct or not, or even if they are misleading - either accidentally or wilfully. 

Is it really reasonable for an executor to take any such records at face value?  OK, so you leave a note about a gift 6 years ago - sure, the executor can explicity check for just that amount at that time.  Then you leave another note stating no gifts in the following year - is it ok for the executor to simply believe that?  What if you were deliberately trying to hide a large gift that year?  Surely the executor has an explicit duty to VERIFY everything otherwise they could be aiding and abetting IHT fraud. 

What's the executor's legal duty and liability in this respect?

There are required to take reasonable steps to ascertain any gifts made. If they don’t HMRC can fine them £3000 + 200% of tax owed. If the deceased has left meticulous records up to the time they died that should be enough. If not it’s down to checking bank accounts , which can only really be done with the account that we’re open at the time of death, and ask, in writing, their nearest and dearest if they received any such gifts.

Of cause the testator may have been cooking the books as far as his records go and relatives may tell porkies about not receiving gifts, but where an executor has been deliberately deceived it is the beneficiaries who who are likely to cop it is in this case.
https://www.harpermacleod.co.uk/hm-insights/2016/february/the-importance-of-disclosing-gifts-to-your-family-for-inheritance-tax-purposes/

Most executors don’t have to worry about this as most estates are well below IHT territory, and even those that are the executors are also beneficiaries who know the deceased well. 

AnotherJoe

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 ?

I'm going to disagree with those above. Nothing.

You need words/records for OVER £3k.

Under £3k (plus an addition for birthdays and weddings IIRC) you dont need anything.

They ask you about gifts OVER £3k, not under, because gifts under £3k are exempt so you dont need records of those.