Inheritance Tax - Gifts from Income and Small Gifts exemption

jf20938

cashcoward said:

.... 
Conclusion: You CANNOT use the Small Gifts exemption in addition to Regular Gifts from Excess Income exceeding £250.
Result: MSE Forum members (free) 1 - 0 Money Which Helpline (paid for).

I've read this thread several times as it's an interesting topic that I've similarly considered.  In my situation, having enjoyed the satisfaction of the £250pp exemption for some years, I suddenly realised it was a distraction. I'm probably not alone.  

https://www.gov.uk/inheritance-tax/gifts states ...

"You can make regular payments to help with another person’s living costs*. There’s no limit to how much you can give tax free, as long as...". 

Also: "for example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year".

So, subject to the rules, you can give your children £60 or £600 or £6000 per month (or per year) from Excess Income, plus the £3,000 from Capital plus £250 gifts to other people, which may still get you to the place you want to be.

Who says that your £250 gifts really ARE from Capital?  I think there are really only two opinions of importance: those of your Executors and HMRC.  The Tilney reference makes the excellent point that you should document your intentions for your long-to-suffer Executors - i.e. that from 2022 you're making regular gifts from Excess Income that now include £250 you'd perhaps previously taken from Capital.  As long as you have sufficient Excess Income to cover gifts to your kids, £250 gifts from Capital are now only relevant when giving to other people.  

Your records might also explain to your Executors how the £3,000 (and any £250 gifts to others) came from Capital, so that they don't inadvertently reduce your Excess Income by £3,000 and - Heaven forbid - to below zero.   

Finally, spending your money on yourselves or living for 7-years are better answers - but I know those are beside the point of your question. 

* I think the term "living costs" is misleading and contradicted by the same article. 

PennyForThem_2

jf20398 actually states my understanding of the whole gift thing.  None of my 'gifts' apart from 1 of 40K and 1 each of 60K from sale of B2L property came from capital.  All came from excess income.  I have documented that I have more than enough excess income to give gifts of money on a constant regular basis to my sons.

As I understand it income is from a regular payment to you from a pension, rental income, job etc.  Capital is from a sale of an asset (shares/property), or from a savings platform that you cash in.

Totally OK to be put right on this.

Jeremy535897

Chapter and verse here in this section of the IHT manual:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

Earls_waistcoat

Small gift allowance - clarification request - quote from HMRC website…… 

“You can give as many gifts of up to £250 per person as you want each tax year,”

Does this mean,

1. you can gift the sum of £250 to (lets say) 43 different persons during that year

or

2. you can gift the sum of £250 to (lets say) the same person every month per tax year.

I am aware of the £3000 limit to one person or a number of different persons and it is not suitable at the moment. I have a relative who wishes to gift money to numerous members of his family and option 2 would allow him to do that. 

I think I know what the answer will be but the HMRC statement is confusing and requires some clarity.

eskbanker

Earls_waistcoat said:

Small gift allowance - clarification request - quote from HMRC website…… 

“You can give as many gifts of up to £250 per person as you want each tax year,”

Does this mean,

1. you can gift the sum of £250 to (lets say) 43 different persons during that year

or

2. you can gift the sum of £250 to (lets say) the same person every month per tax year.

I am aware of the £3000 limit to one person or a number of different persons and it is not suitable at the moment. I have a relative who wishes to gift money to numerous members of his family and option 2 would allow him to do that. 

I think I know what the answer will be but the HMRC statement is confusing and requires some clarity.

'Up to £250 per person each tax year' seems clear to me but it's even clearer in the detailed tax documentation:

It does not matter how many different donees there are, as long as each donee is given no more than £250 in the same tax year.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14180