What is meant by "gifts out of income" and "normal expenditure" in the IHT context?

joesoap1264

Hi M.
thanks.I have everything written down for them to do, it’s the IHT forms I think will be the bother, I cannot get them to even look into it.
I write every gift down, when, how much, to whom, etc, and some have dropped off the 7 years, but it’s ad infinitum.
will look at doing that spread sheet, may be too complex for me 😂
the Hmrc only want to know what you have given away .
pit’s rather complicated, but I look into it often, then it’s still not easy.
👍

joesoap1264

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

Albermarle

joesoap1264 said:

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

You are trying to avoid paying tax. So even though it is legal, you can't expect HMRC to make it easy, and you can expect to be able to prove everything is in line with the rules.

MarzipanCrumble

joesoap1264 said:

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

Agree with M.  Page 8 is an expected to be completed part of the IHT form if you are regularly gifting out of income.  'Regularly' is what HMRC is looking for, I think, and before money hits any saving vehicles you may have because (not sure about this) doesn't it then become capital?

So regular is say £500 per month to each child which page shows comes out of income and does not impinge your lifestyle/spending.

You are expecting your kids to trawl through your bank statements to complete page 8!  Maybe for more that 1 or 2 years too.

Linton

MarzipanCrumble said:

joesoap1264 said:

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

Agree with M.  Page 8 is an expected to be completed part of the IHT form if you are regularly gifting out of income.  'Regularly' is what HMRC is looking for, I think, and before money hits any saving vehicles you may have because (not sure about this) doesn't it then become capital?

So regular is say £500 per month to each child which page shows comes out of income and does not impinge your lifestyle/spending.

You are expecting your kids to trawl through your bank statements to complete page 8!  Maybe for more that 1 or 2 years too.

The law is vague but HMRC's default position is that unused income becomes capital after 2 years.  So you have some leeway to spread gifts over time but not a lot.

joesoap1264

Linton said:

MarzipanCrumble said:

joesoap1264 said:

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

Agree with M.  Page 8 is an expected to be completed part of the IHT form if you are regularly gifting out of income.  'Regularly' is what HMRC is looking for, I think, and before money hits any saving vehicles you may have because (not sure about this) doesn't it then become capital?

So regular is say £500 per month to each child which page shows comes out of income and does not impinge your lifestyle/spending.

You are expecting your kids to trawl through your bank statements to complete page 8!  Maybe for more that 1 or 2 years too.

The law is vague but HMRC's default position is that unused income becomes capital after 2 years.  So you have some leeway to spread gifts over time but not a lot.

Linton said:

MarzipanCrumble said:

joesoap1264 said:

Ps. Most, or nearly all gifts are out of income .
money not used by us,et.al is saved, then given away.
They love making life complicated !

Agree with M.  Page 8 is an expected to be completed part of the IHT form if you are regularly gifting out of income.  'Regularly' is what HMRC is looking for, I think, and before money hits any saving vehicles you may have because (not sure about this) doesn't it then become capital?

So regular is say £500 per month to each child which page shows comes out of income and does not impinge your lifestyle/spending.

You are expecting your kids to trawl through your bank statements to complete page 8!  Maybe for more that 1 or 2 years too.

The law is vague but HMRC's default position is that unused income becomes capital after 2 years.  So you have some leeway to spread gifts over time but not a lot.

Thanks guys, of course I want to get out of paying IHT, who doesn’t ?
thanks Linton, that was the reason of coming on this forum, advice and tips, something Hmrc does no give you, you have to find out yourself .
ignorance is not bliss with money affairs!
regular income.
regular gifts,
regular? What’s regular ?
some get paid weekly, some monthly .
salary is yearly.
seems there is a difference of opinion about income and capital.
linton says 2 years, which is good to know.
can this be verified by Hmrc anywhere, or is it hidden in the small print.
we are not all accountants specialising in IHT.

so one could put unused income into a savings a/ c, and gift to whomever, if and when one wanted to.
2 years is good, saves setting up standing orders etc.every month or so !
I usually gift birthdays , xmas, etc, when normal folk give gifts.
the amount one can gift , and when is the problem !

£3k p.a is allowed.plus umpteen small gifts.according to Hmrc!
is £3k every month, or £36k every twelve months allowed ?
it is still regular over a period of time .

as I said, my income is circa, £1k per week , excluding interest off banks, which varies with rates.
how much can be gifted a year from my £52k income, which just sits in my current a/c, until I move it to savings a/c for better rate ?
I don’t require it to live, otherwise, I wouldn’t have amassed £650k in the bank accounts !
Can I gift £12.5k a year to my son, and same to my daughter, once a year, or £6k twice yearly, or £1k every month ?
The total amount gifted in the year is the same, it’s unused income not capital !
It’s not in a fixed a/c.
It’s these nuances that helps one not to evade paying tax, but avoid it .legal, or am I wrong ?

I don’t expect anyone to trawl through reams of bank statements, I will set it all down, yearly.
have been doing it for years.
one. Only needs 7 income, outgoings, yearly.
mr Mcawber I ain’t:-)
does that seem sensible, or am I missing something ?

joesoap1264

Sorry MC, cannot quite follow your reply.
if an accountant did it, he would require 7 years of gifts, etc, to be able to fill forms out !

joesoap1264

Hi A, yes I want to Avoid tax.
it’s the rules that are the problem, and where to find them, so they comply with Hmrc.
If I have read one example of so and so did this, I have read umpteen examples, but they all seem to say the same thing.
there doesn’t seem to be any hard and fast yes/ no examples, even on Hmrc site.

Jeremy535897

The most detailed guidance from HMRC is here:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 and the following sections.

Grumpy_chap

This thread seems to have gone down the route of the tax tail wagging the life dog.
Also, remember the OP's Estate can never incur more IHT if the gifts are given than if the assets remain directly within the OP's estate at death.

In the case we have here, the OP:

• Fully owned £500k house
• £650k cash-like assets
• £1k per week, £52k per year "take home" income
• Desire to gift £1k per month (£12k per year) to both of two children 

The first priority for the OP should be to use their income to give the OP the best life that the OP can have. 
Some of the luxuries of life. 
Some of the experiences that the younger OP could perhaps only dream of. 
The OP has worked hard and made sacrifices along the way to reach this position of financial security so now deserves the rewards.
Part of the "best life the OP can have" may very well include to provide the next generation with the support that maybe the OP was not fortunate enough to have earlier in their own life.

Now, the OP has asked about the way to make gifts out of excess income and whether there is a difference between £2k gifts per month or £12k gifts every six months or £24k gifts every year.  Well, I have no specific knowledge or expertise but my lay-person take on this would be that the gifts should match income profile.  So, in my view (which has no reason to be correct), if the pension income is received monthly, then make the gifts monthly.  That is how we work up until retirement (matching salary to mortgage etc) so why would we work differently after retirement?

Another positive for the OP with the owned house plus the substantial cash-like assets, no level of gifts from income are going to be subject to DoA - whatever happens the OP is going to be in the fortunate position to choose desirable and self-fund care should it ever be required.