Gifts from Income

Hitting

1.With the understanding that gifts can only be made from surplus income, ..can a regular gift be for anything?
If a regular monthly gift of £x  was made by me into my son’s new ISA,would this be acceptable to HMRC and if I was to change the amount over time would that be ok?
Or is there only certain types of gifts that can be made?
2.How is normal expenditure defined under this IHT exemption?….for example would the purchase of an expensive pair of spectacles, after visiting the optician be regarded as a capital expenditure or income purchase?,….similarly purchases from Amazon

tacpot12

A regular gift from surplus income can be used for any purpose. It doesn't matter if your son uses the money to fund their ISA, their pension or buys premium bonds with it.  

Changing the amount over time is also allowed. The main requirement is to show that the amount given is always surplus to your requirements for your living expenses.

If you can afford to buy an expensive pair of spectacles (i.e. more expensive that necessary), you would appear to have some excess income, but if you have spent the money on expensive spectacles, you can't then give it away! You would need more surplus income. 

The best way to know, and possibly prove, that you have surplus income is if you are accumulating savings that you will never need to use. Never is a long time, but if you can see that all likely eventualities are covered by savings that you already have, and you are just accumulating more savings, then you have surplus income. You might also have surplus income even if all eventualities aren't covered by your savings, but are likely to be covered - e.g. you have enough time to save up before the expenditure is needed. 

Hitting

Very helpful..thank you tacpot12

slinger2

See: https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf page 8 which need filling in if box 6 is ticked "Are you claiming that gifts should be treated as exempt as ‘gifts out of income’?" What evidence is required I wouldn't know.

Hitting

If I have calculated that I would have no IHT to pay,which suggests I don’t need to complete form IHT400, but have been making gifts out of surplus income,when and how does  one complete form IHT 403.
The above is a scenario im looking at!
I would have expected to complete form IHT205 in the past,but believe this is not now required…

Bookworm105

Hitting said:

If I have calculated that I would have no IHT to pay,which suggests I don’t need to complete form IHT400, but have been making gifts out of surplus income,when and how does  one complete form IHT 403.
The above is a scenario im looking at!
I would have expected to complete form IHT205 in the past,but believe this is not now required…

If not required to submit 400, then why would you think they want 403?

The purpose of 403 is as stated " To work out the total value of the estate (on which tax is charged) we may need to add the value of these gifts to the value of the estate at the date of death". So if the estate is below the threshold with the gifts included then you do not have to submit it.

Hitting

At present I am making gifts from surplus income and keeping appropriate records and would like to know when these records would be needed.
if I predeceased my wife,and my Will stated that all of my assets should go to my wife,but if I had made other gifts as PETs but my death was within the 7year period prior to my death, I have determined (using the GOV. IHT Calculator) that no IHT would be due,presumably since gifts less than NRB.
With above situation are gifts from income irrelevant and need not be declared?..and would only need to be considered if my death was the second death rather than first…

Hitting

When including Gifts from Capital..PETs, do you also have to calculate the total amount the Gifts from Income accumulated over the period?

Linton

slinger2 said:

See: https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf page 8 which need filling in if box 6 is ticked "Are you claiming that gifts should be treated as exempt as ‘gifts out of income’?" What evidence is required I wouldn't know.

When I was an executor the deceased had made very large GFIs justified by a very large income.  I attached a detailed annotated 7 year bank statement to the IHT documentation. Whether that was really needed I dont know but HMRC never questioned it, perhaps the effort that would be required frightened them off.

If you want your executor to use GFI it is essential that you leave detailed notes on all such transactions otherwise the poor executor could spend weeks analysing your bank statemenrts.

Hitting

When establishing the value of deceased estate and any gifts made,and if all assets are ‘willed’ to surviving spouse,hence I presumed no IHT payable and I would be able to progress to applying for probate…but when and how and to whom do I need to complete form IHT403,which would show PETs and GIFs

Hitting

Rightly or wrongly I thought IHT 205 would be required upon first to die.and IHT 400 upon second death…at the latter position IHT403 would be used.Hence if I were to die first and IHT205 were used, I don’t think reference to IHT403 is mentioned..