IHT. Gifts from excess income. Accumulation units

Jeremy535897

I am no expert on these things, but I thought that once a SIPP was in flexible drawdown, it applied to the whole fund.

Remember that you have to draw out of the SIPP sufficient cash (whatever its tax status) to cover the gifts, unless they are covered by other income. You can't draw £5,000 out of a SIPP as TFC and give £20,000 away and claim that somehow what's left in the SIPP covers it.

Ebkent

HL allows you to draw down any % of a SIPP into the Income drawdown fund.
I took some of my fund into drawdown as I needed the TFC to fund a property purchase.
If I withdrew £5,000 as annual tax free cash, that is the amount I would add to my income total in the IHT form. The remaining 75% would remain invested in my income drawdown fund. I can draw on it any time, but would have to pay income tax on it.

Jeremy535897

I misunderstood, as you have not gone into flexible drawdown. It looks as if you have a sensible plan.

Robert_McGeddon

Ebkent, thank you for your earlier abrdn Techzone link.  In return you may want to check out this Citywire blog post - I found D Bergman's contributions well-informed and helpful.

I think you have got a pretty good handle on gifting out of income.

A few extra thoughts, just in case....

1 You need to keep good records of income and gifts - you won't be around when your executors come to execute your game plan.

2 Write to your donees setting out your intention to make regular gifts. If you peg after just one gift it will likely still qualify.

3 IMO don't push the gifting to the limits of what's possible. If there's a bit of slack in the calculations HMRC are more likely to accept the claim without investigation. Remember that you won't be around to answer the finer points!

4 The availability of excess income is on a "year-on-year" basis. A "bad" year in isolation doesn't preclude making a regular gift in that year. Personally, I intend monitoring a rolling 3-year average. Again, a bit of slack aids the overall picture.

HTH

Ebkent

Thanks all for your comments. I had a free Video consultation with a Tilley consultant and she was very helpful. Importantly she confirmed I could use any UFPLS / TFC as part of my earned income surplus, as long as it wasn’t taken all at once as a lump sum, that would be treated as capital.
I intend to withdraw a fifth my uncrystallised fund for the next 5 years. The UFPLS will be paid to my current account annually and I will include it in my surplus income so I can gift the amount.
She pointed out that I should use up non Pension Fund assets before the Pension funds, as they were inheritance tax free. But as my son will undoubtedly pay income tax when he draws against the ‘Inherited pension plan’ passing some on now tax free makes sense.