IHT & Normal Expenditure Out of Income Exemption?

SJMALBA

Hi,

I'm a full-time 'unpaid carer' for my elderly mother, and among other responsibilities, I deal with the finances (obviously, when it comes to my mother's money specifically, I act in accordance with her instructions/with her approval).

My mother kindly gifted me money to the tune of 6k in 2020/21 (3k brought forward from the previous year, having never gifted before), 3k in 2021/22; she has said that she wanted to gift more, but given the potential IHT implications, I said that it was best not to (even though, as things stand, her estate is unlikely to be liable for IHT, but we want reduce the risks, just in case); however, the recent 'Giving Money to Children' thread led me to the 'Normal Expenditure Out Of Income Exemption' (NEOOIE), and having read up on it, it almost seems too good to be true, so I am concerned that I am missing/misunderstanding something?

For illustrative purposes, let's say that my mother's monthly finances are as follows:-

Income after Tax - £1500

Expenditure - £600

Surplus Income, therefore - £900

Could she gift some of that surplus to me on a regular (monthly?) basis such that it would be eligible for potential exemption from IHT under the NEOOIE?

If so, I understand that it would be good practice to draw up a letter of intent from my mother, set up a standing order for the gifts, and to keep financial records, as evidence to support a claim should the need arise?

Have I missed/misunderstood something? Is there anything else that I should be aware of, before we decide whether this is something worth pursuing?

TIA.

Albermarle

No I think you are correct .

However to take one step back . If she gifted you more out of Capital , she would not increase her liability for paying IHT.

Only that if she dies soon afterwards and the estate is liable to pay IHT ( or is close to the limit) the gift would be counted as part of her estate . So the estate would just be back where it started.

If she died after 7 years it would not be counted at all ( at various % if less years ) and of course if the estate is not liable for IHT anyway , it does not matter how much is gifted.

In any case if the estate  ends up paying a bit of IHT , it is not the  end of the world and not worth worrying too much about it.

SJMALBA

Thanks, Albermarie. Good to know that I seem to be understanding this (surprisingly generous?) exemption correctly.

FWIW, I take the view that the 'taxman' gets/takes enough, in general, so no desire to gift 'him' anymore than absolutely necessary, therefore, no plans to make further gifts from capital beyond what is exempt each year.

SJMALBA

...though it seems that I failed to get your username correct! Apologies, Albermarle.

(BTW, can posts be edited?!)

Eco_Miser

SJMALBA said:

Thanks, Albermarie. Good to know that I seem to be understanding this (surprisingly generous?) exemption correctly.

FWIW, I take the view that the 'taxman' gets/takes enough, in general, so no desire to gift 'him' anymore than absolutely necessary, therefore, no plans to make further gifts from capital beyond what is exempt each year.

You seem to be missing the point: any capital not gifted is liable to IHT (if IHT applies), any capital gifted is liable to not more than the same IHT, but that liability decreases with time and drops to zero after seven years, should the donor live that long.

Gifts out of income obviously do not reduce the donor's capital, or the IHT that may become due on it, thought they do stop the capital increasing.

Yes posts can be edited - gear wheel at top right of post.

jamesd

You do need to keep good records that you can show to HMRC, both her normal expenditure and the gifting. It'll also be good to get a third party witness just in case anyone accuses you of siphoning off her money without consent later. If no siblings this is much less likely but self-protection in advance is free or cheap.

WaywardDriver

Suggest you download IHT403 to see the type of records required.

pip895

My Father used to make ad hoc payments to my sister and I and or the grandchildren whenever his bank account exceeded what he considered was a reasonable level.  As he wasn’t drawing down from his ISA or savings it was all excess income but filling in the forms after his death was a bit of a nightmare.  I seem to remember many hours spent pouring over bank statements trying to work out what expenses went into which categories on the form.  There was a category for care home fees but no where to put a live in career for instance, it was a horrible exercise and in my opinion the form is not fit for purpose.  Anyway if you really think your mothers estate could be subject to IHT then it’s a good idea to download the form and keep the records in the right format as you go along.

I would not want to put you off the idea though, as has been stated giving gifts above any allowance does not increase the tax liable it just may not save any.  It is also not unreasonable for your Mother to pay you for your help - if you weren’t there she would need to pay for care after all.

SJMALBA

Thanks for all the replies, info. and useful pointers.

They have prompted me to go through the IHT rules again, which has led to some further questions!

My late father's estate passed to my mother, and while I don't know its value (they had joint bank accounts, and shared ownership of the family home, 1/3 each, with me the remaining 1/3 (I also cared for my father in his final years)), it is likely to have been much less than the 325k threshold - does this mean that any unused amount could be added to my mother's allowance?

Also, as my mother plans to give her 1/3 share of the home to me (having already gifted my late father's 1/3 to me), does this mean that her threshold will already be 500k, rather than 325k?

(She does have a second property, in the form of a croft (jokingly referred to by some as 'A small piece of land, surrounded by legislation' (we are in Scotland, BTW)), which complicates things...?)

If either, let alone both above apply, then short of a visit from Agent Million, it is even less likely that my mother's estate will attract IHT, so perhaps I'm over thinking it?!

jimjames

SJMALBA said:

Hi,

I'm a full-time 'unpaid carer' for my elderly mother, and among other responsibilities, I deal with the finances (obviously, when it comes to my mother's money specifically, I act in accordance with her instructions/with her approval).

TIA.

This bit stood out to me. If she/you are trying to get money out from possible IHT would it make sense for her to pay you for your caring duties so that the money is payment for your services not a gift. That then removes any issue for paying under these rules but also leaves headroom for other payments to be covered if necessary. Presumably payment for caring would also remove an issue of deprivation of assets if you can show that the payments were reasonable (paying £500 per hour would fail that test)

Albermarle

My late father's estate passed to my mother, and while I don't know its value (they had joint bank accounts, and shared ownership of the family home, 1/3 each, with me the remaining 1/3 (I also cared for my father in his final years)), it is likely to have been much less than the 325k threshold - does this mean that any unused amount could be added to my mother's allowance?
No what happens is that your Mum gets his £325K  threshold , so when she dies £650K will be the limit for her . Plus up to £175 K for gifting the family home to a child and £175K of the same from your late Dad. So One Million Pounds , IHT free
However as you were only gifted two thirds of the home , not sure exactly how that might affect the situation , it might reduce the figure by a portion.