Repayment of a debt and IHT403 gifts out of income

mrj999

Aged 67. I've started paying into junior SIPPs and ISAs for my four grandchildren (more than the £3k annual IHT limit). I've also started recording income and expenditure for the IHT403 form, since my retirement income is a lot more than my modest expenditure. A couple of questions:

1. My daughter is repaying an interest free loan from me over 5 years. Do I count these payments as income? I suspect not, and that the loan is just a reducing bit to add onto my estate which is moving from an 'add in' to within my estate.

2. I pay annually into a SIPP, for IHT purposes. Should I count this as expenditure since it is regular, or does it just count as moving capital around?

No plans to die yet (!), but recording all this seems prudent.

Thanks in advance.

Marcon

mrj999 said:

Aged 67. I've started paying into junior SIPPs and ISAs for my four grandchildren (more than the £3k annual IHT limit). I've also started recording income and expenditure for the IHT403 form, since my retirement income is a lot more than my modest expenditure. A couple of questions:

1. My daughter is repaying an interest free loan from me over 5 years. Do I count these payments as income? I suspect not, and that the loan is just a reducing bit to add onto my estate which is moving from an 'add in' to within my estate.

2. I pay annually into a SIPP, for IHT purposes. Should I count this as expenditure since it is regular, or does it just count as moving capital around?

No plans to die yet (!), but recording all this seems prudent.

Thanks in advance.

How very sensible. Your executors will thank you, although not, I trust, for many years yet!

1. No; it's not income where it is paying off a debt.
2. No; it's not expenditure because the cash is still effectively yours. A pension is only an elaborate and hopelessly complicated savings scheme!

Keep_pedalling

The SIPP payments are an interesting one, as the payments already save you income tax and take that money out of your estate, it seems odd that you would be allowed to claim a double whammy in taking the same money out of your estate a second time through gifting. 

mrj999

I am not counting my SIPP as a gift, merely asking if I need to include it as expenditure, which affects the ceiling for gifts out of income.

Keep_pedalling

mrj999 said:

I am not counting my SIPP as a gift, merely asking if I need to include it as expenditure, which affects the ceiling for gifts out of income.

I realise those payments are not gifts, but you were asking if your contributions to your SIPP counted as expenditure or not. If they don’t then you would be able to gain a double IHT benefit by claiming those payments as excess income as per the following example.

Salary = £80k, expenditure £40k, SIPP contribution £40k.

If the SIPP contribution is not expenditure then if you claim £40k of gifts as from excess income then you have taken £80k out of your estate from the same £40k of income which is obviously wrong as in reality £40k is coming from savings.

Payments into a SIPP are effectively deferring income, so you don’t pay tax income on it until you start drawing down, so in the above example your income is £40k not £80k so you don’t have any excess income and you can’t claim gifts from excess income.

mrj999

Keep_pedalling - thanks for the explanation. I see your point, and agree your explanation sounds sensible....but the law isn't always sensible. Are you telling me that you know this to be the case, or is this your opinion based on common sense? If this sounds insulting I apologise. I'm only after clarification.

Keep_pedalling

mrj999 said:

Keep_pedalling - thanks for the explanation. I see your point, and agree your explanation sounds sensible....but the law isn't always sensible. Are you telling me that you know this to be the case, or is this your opinion based on common sense? If this sounds insulting I apologise. I'm only after clarification.

Not need to apologise, I am just a stranger on the internet and am certainly not an expert so my (and any other posters) opinions should be treated with caution.

As it sound like you have significant assets, I would look to take advice from a expert in IHT planning on the best ways of reducing your IHT liabilities. 

Robert_McGeddon

mrj999 said:

Keep_pedalling - thanks for the explanation. I see your point, and agree your explanation sounds sensible....but the law isn't always sensible. Are you telling me that you know this to be the case, or is this your opinion based on common sense? If this sounds insulting I apologise. I'm only after clarification.

I agree with Keep_pedalling for the reasons given. Some further support in this Canada Life paper. On P6 they produce their own "enhanced" version of form IHT403 that includes pension payments as a separate line item for  expenditure.

mrj999

Thanks Robert. That's conclusive enough for me.