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IHT gift out of surplus income question

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Actually it's more a question of what constitutes normal expenditure, I guess.

Alongside making monthly gifts out of surplus income, a person has also saved money from surplus income over several years in a savings account. The person plans to used the savings to purchase a car and to have building improvement work (not regular maintenance) done to their home.

In the year when the person uses their saved funds to purchase the car and/or have the building improvement work done would it be considered that the person's normal expenditure for that year would therefore have increased by those amounts?

Logic says to me that the purchase of a car and the building improvements should not be considered normal expenditure from that year's income as the costs aren't normal. The spending would be unusual and the source of the funds would be from the person's savings. 

Were this not the case, the person's gifting out of surplus income could in effect cause their savings to become 'frozen'. Which would seem odd, at best. I'd value any thoughts

Comments

  • So, I complete a copy of IHT 403 form to justify what I give to sons on a regular basis out of surplus income.  I have 'extra' surplus income in addition to the regular monthly payment to sons out of surplus income.  Currently I am putting this into premium bonds, but it could also be a regular savings account or a stocks & shares ISA.

    If I have a big expenditure i.e. new car or big house repair which I cannot pay straight out of 'regular income' then I would use my saved income or a capital asset to fund.  I think, from an HMRC viewpoint, this would come out of 'assets' which you have accumulated and not affect the 'regular income' situation i.e. you can afford to pay outright.  

    If you had to take a loan and pay regualrly to payback the loan this would be added to your expenditure and reduce your 'surplus income'.  This may or maynot affect affordability of making gifts from surplus income.

    That is how I see it but happy to be corrected.
  • Marcon
    Marcon Posts: 14,554 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper Combo Breaker
    See https://community.hmrc.gov.uk/customerforums/pt/29489805-d3b2-ee11-a81c-000d3a86ec77 where there are some (fairly) useful answers - and the opportunity to ask a question yourself.
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • I believe (perhaps erroneously) that after two years, income is treated as an asset.  Therefore, if the new car is purchased with such two-year-old income it would not affect your surplus income for the current year.
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