Normal expenditure out of income

loiner

Our father, who is in his 90's, has minimal expenditure and his savings are slightly over the IHT threshold. In order to minimise further IHT exposure, we plan (with his full consent) to make regular and equal payments to all siblings. I understand this procedure is legal, but I'd just like to be 100% sure there is no income tax impact on the 3 recipients. Can anyone confirm this please?

In order to formalise what we are doing, I have drafted the following letter which will be sent to each recipient:

Following a recent assessment of my financial situation I have ascertained that I am able to contribute to your living costs. Accordingly, I am arranging to make a monthly standing order of £nnn to your bank account. This sum will be paid wholly from my regular monthly income. I confirm that I can afford these payments after meeting my usual living costs.

Can anyone see any problems with what we are doing?

Keep_pedalling

First off are you sure you have taken account of all his exemptions including any transferable extensions if he is a widower.

If he is going to do this then you need a lot more than that statement, he is going to to keep records of both income and expenditure for each financial year he makes these gifts.  A standing order needs to be used with care and reviewed each year. 

loiner

Keep_pedalling said:

First off are you sure you have taken account of all his exemptions including any transferable extensions if he is a widower.

If he is going to do this then you need a lot more than that statement, he is going to to keep records of both income and expenditure for each financial year he makes these gifts.  A standing order needs to be used with care and reviewed each year. 

Yes, used his exemptions for last tax year and this year. I have LPA and am recording all gifts I have made on his behalf.

user1977

Has anybody recommended such a letter? I'm not sure it would make any difference - whether or not he's actually paying the gifts out of normal income is a question of fact.

loiner

user1977 said:

Has anybody recommended such a letter? I'm not sure it would make any difference - whether or not he's actually paying the gifts out of normal income is a question of fact.

Most of the words are copied and pasted from the gov.uk website. I just thought it better to formalise the arrangement.

Brie

To answer the simple question - there would be no income tax payable by the siblings for the gifts paid by their father because it is not income for them.  Father would have paid income tax when receiving the money himself.   I don't think the estate would need to pay IHT on these amounts if they are regular gifts. 

Is dad capable and be signing the note you have drafted or are you signing it as holding the LPA?  

Flugelhorn

I just use a spreadsheet to record gifts to the offspring - the key is that it is clear that there was still enough left after the gifts and they know they are being given it now rather than it adding to our savings when 40% would disappear in IHT 

MarzipanCrumble

If you are keeping a spreadsheet and the estate is going to be liable for IHT then replicate the form you will need to complete to show HMRC.  Look at page 8.

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

loiner

Brie said:

To answer the simple question - there would be no income tax payable by the siblings for the gifts paid by their father because it is not income for them.  Father would have paid income tax when receiving the money himself.   I don't think the estate would need to pay IHT on these amounts if they are regular gifts. 

Is dad capable and be signing the note you have drafted or are you signing it as holding the LPA?  

He'll be signing it himself.

loiner

MarzipanCrumble said:

If you are keeping a spreadsheet and the estate is going to be liable for IHT then replicate the form you will need to complete to show HMRC.  Look at page 8.

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Good idea, thanks.

poseidon1

loiner said:

MarzipanCrumble said:

If you are keeping a spreadsheet and the estate is going to be liable for IHT then replicate the form you will need to complete to show HMRC.  Look at page 8.

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Good idea, thanks.

Having had to prove to hmrc that regular gifts out of surplus income exemption did arise on a couple of estates in the past, would strongly recommend a yearly analysis laid out in accordance with page 8 of the hmrc declaration form as suggested by loiner.

Merely making some sort of unsupported declaration to that effect would be of no use to the  executors when time comes to complete the IHT 403.