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

joesoap1264

Thanks M, that article seems to me to allow me to gift my two kids, £5k on their birthdays and £5k on their Xmas’ ,£20k pa, leaving us well over what we need to live on.
I have set up standing order for GG for his Jisa of £100 per month,£1200pa.plus gifts on birthdays and Xmas to his Jisa .
to me these are gifts , are regular, out of income so should not incur 
IHT ?
as I am married, we have joint a/c which gifts will come out of.
all monies are paid into it so easy to see , plus a spread sheet of income and outgoings , which are from same a/c.

we are allowed £3k each pa gifts, so assume we still have these left to gift to either of the three above ?? Plus £250 each for small gifts .
I stand corrected if wrong !
If right.
Can these be gifted to same kids and GG ?
We have been gifting the kids on their birthdays / Xmas,£1000 each and occasional £10k each , for a year or two now, so the pattern is already there , and we are still accruing money to either gift or ( save) which I really don’t want to do, got enough capital now.
As the kids will be sorting this out when we are both gone, it would be nice to assure them there is no IHT to pay on their gifts.
As it stands I can see IHT will probably occur when all is settled as other assets will knock us over the £1m , unless we have to use it for care home fees.
I am not leaving ourselves skint and care to be paid for, just trying to gift as much as possible over £1m as I can.
As I am the main one with large income, which will drop considerably if I go first, OH would have to use part of the £1m to live on, but not that much, so gifts could still carry on, if reduced even .
does this plan sound ok, or am I missing something🤬

Jeremy535897

The £250 exemption is for one off outright gifts to individuals. Once the aggregate value of gifts to a donee exceeds £250, the small gifts exemption is lost for that donee. Ideally save the annual exemption for gifts that are less regular, or for gifts of assets rather than cash. Gifts from a joint account for husband and wife are normally treated as made 50:50. If one of you is likely to die first, route non-exempt gifts through that person (which will need a sole bank account in their name) to maximise the chances of gifts falling out of account under the seven year rule.

MarzipanCrumble

Personally, and I am not an expert, but I would regularly standing order a consistant amount to my children, which I can show definitively is within my income and lifestyle.

Your executors (which may or may not be your kids, have to definitively prove to HMRC that the regular payments are what they are - gifts on a regular basis out of income which does not impinge on lifestyle.  I remember reading on Deaths Forum that HMRC did query this and went back over financial accounts i.e. the executors had to actually provide documentation toprove it.

joesoap1264

Jeremy535897 said:

The £250 exemption is for one of outright gifts to individuals. Once the aggregate value of gifts to a donee exceeds £250, the small gifts exemption is lost for that donee. Ideally save the annual exemption for gifts that are less regular, or for gifts of assets rather than cash. Gifts from a joint account for husband and wife are normally treated as made 50:50. If one of you is likely to die first, route non-exempt gifts through that person (which will need a sole bank account in their name) to maximise the chances of gifts falling out of account under the seven year rule.

Thanks J, cannot quite get the gist of it.
muddle headed at present with it all.

Jeremy535897

If you give anybody £250.01 or more, the small gifts exemption does not apply to that donee.

joesoap1264

Thanks again J.
think I have it.
so ok to do regular gifts from joint a/c, kids and GG Jisa, birthdays,Xmas.
I am 76 , wife 81, not in best of health, hence trying to get this set up asap.
I can always get knocked down by a bus tomorrow !



wife has another a/c ,not a current one though, savings, a/c ,so  gifting one offs, to the three again, as these are the only three that we are concerned about, would be better from hers.?
or items of jewellry, etc, assets.
Should be able to set up a current one for her, she’s had them in the past.


i.e if we decide to gift a large amount to either of the three, or all, as a one off, which will come under the 7 year rule.
is that correct ?

There is no limit to the amount to regular gifts, as long as they are maintained regularly, and still doesn’t affect our standard of living.
is this correct ?
i.e if we feel that more than £5k twice yearly to kids doesn’t affect our living, we could increase it, to £7.5k twice yearly,= £30k PA to kids
not drastically, but keeping a pattern ?

Jeremy535897

So long as, taking one year with another, you have enough income to cover your living expenses and the regular gifts. Income for these purposes is not taxable income, which can include all sorts of things that would not be "income" under general principles.

joesoap1264

Re reading my reply doesn’t seem as if I have got it!
what my wifes gifts has no bearing on mine, we are separate entities with Hmrc
the joint a/c .50-50,where regular gifts are to come from, is funded nearly totally by me, not my wife.
quite complicated when done jointly.
need to get a bit more info before I commit to plan.

Jeremy535897

Joint accounts are deemed to be owned 50:50 unless there is clear evidence of a contrary intention and an imbalance of funding. I would be very surprised if HMRC tried to argue that gifts from a joint account between husband and wife were anything but 50:50. It is quite easy to ensure the correct donor by moving funds from the joint account to an account in one spouse's sole name.

joesoap1264

Jeremy535897 said:

Joint accounts are deemed to be owned 50:50 unless there is clear evidence of a contrary intention and an imbalance of funding. I would be very surprised if HMRC tried to argue that gifts from a joint account between husband and wife were anything but 50:50. It is quite easy to ensure the correct donor by moving funds from the joint account to an account in one spouse's sole name.

As I said,  my wife has several a/cs, same as me, all savings,a/cs,but only one joint current,
 The current a/c is where everything we earn and pay out is from.

from this a/ c , are linked a/cs in our separate names, the savings a/cs, so money which we don’t use is transferred to or back to spend or re invest, which is what I really rather donate to the kids and GG., 
appreciate all your help.
as an aside, god forbid my wife does go first, ( one of us has to), can she gift her jewellery to kids before death, providing she has a chance, and vice versa, without iht consequences?
after death it becomes mine then IHT applies!
IHT only involves the last to go, is this correct?