Tax on payments to a family member

Jeremy535897

Gifts that are "normal expenditure out of income" are exempt from inheritance tax. Here is some guidance on a rather complex subject:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/normal-expenditure-out-of-income-exemption/

Reaper

Jeremy535897 said:

Gifts that are "normal expenditure out of income" are exempt from inheritance tax. Here is some guidance on a rather complex subject:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/normal-expenditure-out-of-income-exemption/

Thank you very much. I was unaware of that and it looks relevant. I guess a signed letter from her indicating the reasons for the payments and that they are coming from her surplus income might be helpful.

Jeremy535897

The purpose of a letter is to evidence regularity (particularly if the donor then dies before many payments are made). More important is a record of income less normal expenditure, evidencing that there is surplus income available to cover the payments.

Flugelhorn

we do a fair bit of "payments out of excess income" to our kids  - covers their rent / management charges etc 

Keep_pedalling

Reaper said:

Jeremy535897 said:

Gifts that are "normal expenditure out of income" are exempt from inheritance tax. Here is some guidance on a rather complex subject:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/normal-expenditure-out-of-income-exemption/

Thank you very much. I was unaware of that and it looks relevant. I guess a signed letter from her indicating the reasons for the payments and that they are coming from her surplus income might be helpful.

No, what is really needed is for her to document such gifts along with her expenditure. If you look at schedule IHT 403 you will see what info her executors will need to provide and it is best if those records are made at the time of gifting rather than retrospectively which is much harder.

if her estate is well into IHT territory, then she should be looking at gifting all her surplus income and possible some lager one off potentially exempt gifts as well. 

Reaper

Thanks everyone. I think a standing order might be an idea as it provides easy proof of regularity as well as convenience. I will keep track of expenditure vs income ready for form IHT403.

She already makes annual gifts to family members within the potentially exempt gift limits, I was just unaware of the payments out of income thing. Many thanks.

Albermarle

Reaper said:

Thanks everyone. I think a standing order might be an idea as it provides easy proof of regularity as well as convenience. I will keep track of expenditure vs income ready for form IHT403.

She already makes annual gifts to family members within the potentially exempt gift limits, I was just unaware of the payments out of income thing. Many thanks.

She could consider making much larger gifts ( higher than the limits ) . If she then survived seven years they would be outside the estate . If she died within seven years then nothing lost , nothing gained . Of course giving large gifts to different family members can sometimes cause difficulties in the family , which is a different issue.

zagfles

Or she could spend her money on posh cruises, fancy dining, flash cars or whatever else she's into and make sure her estate is under the IHT threshold 

Albermarle

zagfles said:

Or she could spend her money on posh cruises, fancy dining, flash cars or whatever else she's into and make sure her estate is under the IHT threshold 

They say the simplest ideas are the best , as in the easiest way to avoid IHT is to spend more money before you die !