HMRC/IHT definition of a gift?

woodward2

Hi,

I have spent many hours searching for a simple definition of what counts as a gift for IHT purposes, but to no avail. I think I now have a reasonably clear understanding of the various exemptions; e.g. £3000 PA per donor, £250 PA per recipient small gift limit, out-of-income gifts etc.

My current understanding is that a gift is anything from your assets; i.e. money, possessions, property etc. or anything sold at less than market value. However what about the following scenarios:

A) I gift my son my car worth £1000
I gift my son £1000 to buy a car
C) I buy a car worth £1000 for my son.

It seems clear to me that all three are reducing my assets by £1000, so that would count towards my £3000 limit. Is that the case?

What if the values were smaller, e.g.

A) I gift my son my camera worth £100 for his birthday
I gift my son £100 for his birthday to buy a camera
C) I buy a camera worth £100 for my son for his birthday?

Would all of these be counted towards the £250 small gift limit?

Finally, my wife buys her Mom £5 flowers each week when she visits her. I think this would count as an out-of-income gift?

Sorry for the long post, but I'm just trying to get some clarity on what should be a simple issue!

getmore4less

Everything you give away is a gift, you just have to be sensible with where you draw the line.

Typically the day to day stuff gets ignored, a pint for the mate down the pub, buying someone dinner....
(there is the catch with the pint if you expect one back because that becomes a gift with reservation till you get you pint back)

Where it starts to cross the line is more regular and gets bigger.

eg. if you bough Sunday lunch every week for same 4 family members  and it came to £125per time , that's £5,200k a year gifting to 4 people. 

Many would not include that in any schedule unless it was clear there was insufficient income to cover that over normal expenses.



If an income trail shows all of this sort of thing is covered then many will just not bother.

it when there are bigger amount that it becomes more important to trace the cut off between income based gifts and gift that fall into the PET regime.

one key thing with gifts from income is there needs to be a pattern(or the intent of one) that in effect makes it part of normal spending of your income.

it does not have to be the same amounts or even the same persons, eg a pattern of using up excess income at end of year and distributed to grandchildren can count, even though the amounts can change and the ones that get money may be different each year. 

You also have the issue of when does income become an asset that can be quite flexible..


Have you had a good read of the HMRC manual on lifetime gifts  plenty of guidance in there to help scope out some of the boundaries.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14000

woodward2

getmore4less said:

Everything you give away is a gift, you just have to be sensible with where you draw the line.

: 
: 

Thanks for the clearer explanation.

Have you had a good read of the HMRC manual on lifetime gifts  plenty of guidance in there to help scope out some of the boundaries.

I'll have a look at that - looks like quite a read!

Keep_pedalling

There are no limits to how much you can give, the £3000 of an exemption not a limit.

Sea_Shell

What's the phrase used a lot...

You can't make your IHT position worse by gifting.

Marcon

Sea_Shell said:

What's the phrase used a lot...

You can't make your IHT position worse by gifting.

...although you could make the position of the recipients worse if there's not enough in your estate when you die to pay the IHT...

Sea_Shell

Marcon said:

Sea_Shell said:

What's the phrase used a lot...

You can't make your IHT position worse by gifting.

...although you could make the position of the recipients worse if there's not enough in your estate when you die to pay the IHT...

Well, quite.

getmore4less

Marcon said:

Sea_Shell said:

What's the phrase used a lot...

You can't make your IHT position worse by gifting.

...although you could make the position of the recipients worse if there's not enough in your estate when you die to pay the IHT...

Very rare and then only for those getting very large gifts or at the tail end of a series of gifts.

Still less than the gift value but an issue if not liquid or spent.

Langtang

getmore4less said:

Marcon said:

Sea_Shell said:

What's the phrase used a lot...

You can't make your IHT position worse by gifting.

...although you could make the position of the recipients worse if there's not enough in your estate when you die to pay the IHT...

Very rare and then only for those getting very large gifts or at the tail end of a series of gifts.

Still less than the gift value but an issue if not liquid or spent.

This is interesting. I may be missing the obvious, but if there's not enough in the estate, then surely it wouldn't attract IHT?

If I gifted £10k and died 2 years later, I had always assumed (that word again) that it would be my estate that paid the IHT if it were due?

If I were to die with no money, would the person I gifted the money to have to pay anything to HMRC?

EDIT: Of course, If you had no money and a £2m house then I would have thought that the house would have to be liquidated to pay IHT?

justwhat

woodward2 said:

Hi,


A) I gift my son my car worth £1000
I gift my son £1000 to buy a car
C) I buy a car worth £1000 for my son.

Buy the car and leave in your name. It depreciates in value anyway.

IHT limits are quite high. Husband and wife both have an allowance. You should attempt to use both allowances if IHT is an issue. eg its not always best for a couple to leave assets to each other.

justwhat

remember surplus income is treated differently.(pension or payment from employment)

(You don say what age you are or you financial position)