IHT403 - Analysis of Income & Expenditure schedule

cheekymonkeytoo

Apologies (esp to Keep_Pedalling) for coming back on the gifts topic again.

Have spent time pulling schedules together which look at income and expenditure (and can be maintained), so my Executors dont have to.  Frankly this would have been so hard for them.

Regarding normal expenditure - I have looked at HMRC guidance and internet to see what types of expenditure can be excluded.

I am particularly thinking of expenditure on items which I dont see as standard, usual, regular etc, and I would see these as coming from capital/savings (unless I did have enough income).

Eg buying a car, new carpets, furniture, bathroom refurb, computer,  TV, large replacement applicances etc.

These would reduce the surplus for gifts, and whlst relevant, am more wanting to understand whats expected content for the form on expenditure.

Appreciate your patience, I do seem to like detail.

Keep_pedalling

I am afraid those big ticket items are classed as expenditure you can’t exclude them. If you look at box 22 on IHT403 it asks for surplus / deficit so some years your expenditure can exceed your income.

What I am not sure of is what happens if on average you don’t have a surplus. For example if you have an annual surplus of £3,000 but every three years you spend £10,000 trading in your car for a newer model. Do HMRC allow you to claim those 2 years of £3000 surplus or would they use the 3 year average which gives you no surplus?

Linton

To claim gifts from income you need to show that your total expenditure is less than your total income over a period of 2 years - unused income turns into capital after 2 years.  So you do have a bit of leeway.

See https://www.mercerhole.co.uk/wp-content/uploads/2019/07/bn_Gifts-out-of-income.pdf for an example.

cheekymonkeytoo

OMG I didnt expect this, how naive am I. 

I certainly have had a couple of large surplus years (redundancy as one example) and I was able to but a new car and refurbish the house in year 3 (from that surplus in savings), whereas year 3 will be a big deficit now.  Alas year 3 I had standing orders paying regular gifts to the kids which now cant work as out of income.   This presents similar issues in other years too.

Of course my stupid expectation was that the non regular nature (ie exceptional large spend not happening each year) would be accepted as being from savings, such savings having been put away for such purchases (which were discretionary and didnt affect my standard of living in the same way as paying bills and having holidays etc).

If thats the way it is then got to live with that (thanks for putting me right) - and I will just have to live longer.

Keep_pedalling

cheekymonkeytoo said:

If thats the way it is then got to live with that (thanks for putting me right) - and I will just have to live longer.

Good plan 😀

cheekymonkeytoo

Sorry - I dont want to ask - but where I have put £ into ISAs etc is that classed as expenditure too?

That is more tricky as sometimes I would recycle existing maturing or other savings (eg from 3+ years ago) into other investments, and also like many of us would use surplus arising most years (eg to buy ISAs).  

Determining whether from surplus across each year looking back is a challenge. 

No more now....I was feeling ok with what I had prepared (having adjusted for the large ticket items from your last replies) - but investment purchases and recycling is now my remaining worry.   

Keep_pedalling

No, putting money into savings is not expenditure as you still have the asset. 

Wouldn’t it be easier just to make some big gifts now and cover the possibility of failed PETs through term insurance? 

getmore4less

It is not a hard 2 years.

One key element is the intent that there is some sort of regular pattern.

It should be possible to structure something that spans more than 2 years if needed.

Also there is an argument that some major purchases are capital(that's been saved up) not from income.
if you can show the savings from income over a period.

Save £500pm then buy or lease 500pm are essentially the same from income cash flow.

A single gift never counts

cheekymonkeytoo

You are so kind to have patience with people like me.  Is this your profession I wonder.

Aside of between me (as primary earner) and wife, majority of gifts have been to the 3 adult kids to cover individual financial hardships (job loss during covid, health issues, debt stupidity etc) - thankfully not all at same time, but many gifts of all sizes as and when needed.  I would say thats a regular pattern for some years.

They get monthly base gifts (not lots), and I have provided big ones depending on income in current year.  Thankfully has calmed the waters now for them. 

Thanks to your/others previous advice etc over the few months I now in a far better place for my executors (not wishing my life away), and am now about there on the income and exp IHT schedule to see what gifts I can cover from income.  I am also using the £3k annual allowance first before applying gifts to income.  As you also said a while back I am ignoring the wifes allowance, as her income is small, and am treating all gifts as if they were from me.

I guess I could gift her to gift the kids, but not been down that road, although for larger gifts that may remove PET further.

Anyhow thanks for help yet again.  Term insurance I have been considering also thanks.

I keep watching other posts to keep alert too - and almost always youre a respondent.

Keep_pedalling

Even though your wife has a small income she should still use her annual allowances, and any PETs would be better made as joint gifts. Have you made use of or have a future opportunity to make gifts in contemplation of marriage for any of your children?

Including any non expired PEts what is your your current joint net worth? If it’s not close to or in excess of £1M you are complicating things for no actual tax savings.

cheekymonkeytoo

Wifes income goes to her own bank account. Gifts all come from our joint account, for which I am sole income provider.  Can I still use her allowance on that basis? 

One of 3 children married - we paid for 50% of honeymoon as a gift, plus 50% of wedding cost as joint hosts.  I havent treated 50% of wedding as a gift.  Does that work if I do?  Other two children are yet to show an opportunity.

Joint net worth is over £1m, but less than that excluding the house and occupational pension pots.  Wills are being redrawn so 100% of my net worth goes to wife (visa versa).  Surviver can then organise a deed of variation to give some of that inheritance to children etc, depending upon state of play.  

You are going to invoice me for consultancy soon I feel......