IHT 403 - Gifts made out of regular income

baby_boomer

I'm trying to reduce IHT by the "gifts out of regular income" route. Do I need all the income to go directly through my current account which deals with expenditure? Or can income remain outside e.g. in an ISA? 

Flugelhorn

I presume you have to give the money to someone else and so it can't really stay in your savings account can it? If you asking whether it can go from your savings account to someone else then so long as you have a spreadsheet showing how much is left after normal expenditure then presume that is OK. (at least I hope it is - money to the kids tends to come from my main account  but expenditure can come from a couple of others too - the spreadsheets just show our totals)

JGB1955

I may be wrong but thought that only income from pensions and employment counted - not savings income.  Happy to be told otherwise...

Flugelhorn

JGB1955 said:

I may be wrong but thought that only income from pensions and employment counted - not savings income.  Happy to be told otherwise...

I assumed it was pensions and employment too though maybe savings interest counts too

baby_boomer

The IHT 403 form has a space for Interest (including PEPs & ISAs)  and Investments.

Grumpy_chap

Flugelhorn said:

JGB1955 said:

I may be wrong but thought that only income from pensions and employment counted - not savings income.  Happy to be told otherwise...

I assumed it was pensions and employment too though maybe savings interest counts too

I don't know, but I would have assumed that any income counted for this purpose.
The concern about IHT and gifts from regular income is possibly more likely to be considered by people that are no longer working.  This is a cohort that is more likely to have income outside of the normal salary and pension sources, so investment income of whatever type (interest, dividends, property rental) as a meaningful part of their retirement planning.

I think the OP's question was, if the income that they are considering includes a high proportion of savings interest, does that income have to be funnelled via the current account to be considered income that can be gifted?  If that is the question, and if savings income qualifies, then I would have said that processing the funds via the current account to complete the gifting is not adding any specific value.

My comments are purely my lay-person thinking - hopefully someone will confirm specifically on both points.

Flugelhorn

I think that makes sense @Grumpy_chap - would be tricky to treat interest separately as some people may have that as a significant part of their pensioner's income

Jeremy535897

Income for this purpose has the natural meaning of the word. That means pensions, earnings, interest, dividends, self employment profits, annuities and anything else that the man in the street would describe as income. It does not include capital sums that are deemed to be income for tax purposes, so it is not simply the same as taxable income (a tax free pension, or interest arising in an ISA) would be income for these purposes). See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250

Keep_pedalling

baby_boomer said:

I'm trying to reduce IHT by the "gifts out of regular income" route. Do I need all the income to go directly through my current account which deals with expenditure? Or can income remain outside e.g. in an ISA? 

Do you actually have excess income? It does not matter what account it goes through you just have to show that it is excess income by keeping good records on both income and expenditure otherwise it is going to be difficult for your executor to claim the exemption.

This exemption does not actually reduce your current IHT liability it just stops it growing through unspent income. If your estate is already in IHT territory you need to take other steps as well.

[Deleted User]

baby_boomer said:

I'm trying to reduce IHT by the "gifts out of regular income" route. Do I need all the income to go directly through my current account which deals with expenditure? Or can income remain outside e.g. in an ISA? 

It’s actually ‘regular gifts out of income’ which has an entirely different meaning altogether, perhaps putting a different slant on the thread. 

baby_boomer

The exact phrase used on IHT 403 is "Gifts made as part of normal expenditure out of income"