Will My Bill Payments Be Viewed as Gifts?

Saga

Background:  Three years ago I gave up my rented flat and moved in with my oldest friend, as a second tenant on the tenancy agreement, to help us both to separately save up money as well as for me to move much closer to work.  As they were already renting the property before I moved in, all the bills remained in their name (energy, council tax*, TV licence, broadband/TV/phone) and are paid via DD from their a/c.  We so decided at the beginning against a joint bills account and instead each month I pay my friend 50% of that month's household bill via bank transfer (FPS), using my initials and month/year as the reference.  The rent is slightly different (although included in my monthly transfer) in that each monthly receipt from the letting agency is actually in both our names although the DD itself comes from my friend's account.

There is nothing formal in writing regarding the arrangement for paying the bills (indeed for a good number of months I had to** cover 100% of the bills when my friend was going through some very serious health problems).

*I have been on the electoral register at the current address since I moved in.

**i.e. made the choice to.

Question: Is the money I transfer to my friend each month to cover my half of the bills as far as HMRC are concerned viewed  as a gift to my friend (re inheritance tax & the 7-year rule)? If so, what should I do to make sure it's not?

Jeremy535897

You are paying your share of joint costs so there is no gift (your friend would technically be making you a gift if he let you live there cost free).

Saga

Jeremy535897 said:

You are paying your share of joint costs so there is no gift (your friend would technically be making you a gift if he let you live there cost free).

Thanks Jeremy.  I'm showing my naivety here, but while I know the payments are not gifts how will HMRC know? Surely, all they see is money going from one personal account to another.

Jeremy535897

HMRC are not going to trawl through all your accounts and ask your executors to explain every transaction. Is your estate likely to exceed £325,000 including any real gifts outside exemptions in the past seven years? Remember that you can make the following exempt gifts (not a full list):

• £3,000 a tax year annual exemption (plus £3,000 brought forward if unused)
• £250 to each donee per year (but not to the recipient of the annual exemption)
• normal expenditure out of income

getmore4less

Saga said:

Jeremy535897 said:

You are paying your share of joint costs so there is no gift (your friend would technically be making you a gift if he let you live there cost free).

Thanks Jeremy.  I'm showing my naivety here, but while I know the payments are not gifts how will HMRC know? Surely, all they see is money going from one personal account to another.

IN the UK many things TAX including IHT are done on an honesty basis,  self assessment is another example.

For deceased estates
The administrator does the work and puts together a capital return for the estate,
HMRC look at that and then decide if they need to have a closer look.
HMRC will know because the administrator tells them if asked 

As well as the documented gifts allowances a lot of the smaller gifts never get documented or included in the returns even if they go over the allowed amounts mainly because people don't know and just consider them part of normal life or regular gifts from income(that don't get documented).

eg. if I took my mum out to dinner every week and it cost £25 for her meal that's £1,300 gifted from income that  won't be going down on my IHT403 .

Saga

Thanks for explanation, getmore4less.  I guess it's the same for the recipient (re income tax).

badger09

Saga said:

Thanks for explanation, getmore4less.  I guess it's the same for the recipient (re income tax).

Even if they were regular gifts from you, there is no tax liability on the recipient.

If you're really concerned (& there is no need to be!) just leave a note with your will to the effect that for the period ... (when you are staying with your friend) that regular monthly payments to their account are to cover your share of joint bills and rent.