Bank of Mum & Dad

Marcon

[Deleted User] said:

Marcon said:

LHW99 said:

Best option may be the "regular gifts from income" allowance. These don't have to be monthly, could be 6 monthly or annual, as long as there is a recorded intention for the gifts to continue, and you can show that they are surplus to your normal living requirements (as I understand it).

That need not involve any withdrawal from the DC pension, as you say you can "live comfortably" (I assume that means there is at least a small surplus every month) but could add up to a significant amount over time.

Unlikely that 6 monthly or annual payments would qualify

That's not quite right.  Your executors would have to show that the gift is made as part of normal expenditure.  Annual gifting is fine.  The issue with longer time periods between gifts is if you die early and so haven't established a normal pattern.  Here, contemporaneous evidence of intention is very helpful.  HMRC's manuals even say: "Normal does not necessarily mean regular or annual although gifts made on a regular basis are more likely to meet the normality test".

HMRC's comments about "you pay from your regular monthly income" is wrong.  If someone only income were, for example, a dividend paid once a year then that would be fine.  Similarly, if some years there was plenty of spare income and some years not, the test is to look at it taking the income "one year with another".

I can only comment on what I've seen in practice - and HMRC have taken a tough line on annual payments/receipts, with a clear warning that they 'expect a regular pattern of payments to be at least 3 times a year'.

Hal17

Keep_pedalling said:

No property?

Yes we do have a property value about £450K. Very interesting to read all the inputs so far, thank you.

LHW99

[Deleted User] said:

Marcon said:

LHW99 said:

Best option may be the "regular gifts from income" allowance. These don't have to be monthly, could be 6 monthly or annual, as long as there is a recorded intention for the gifts to continue, and you can show that they are surplus to your normal living requirements (as I understand it).

That need not involve any withdrawal from the DC pension, as you say you can "live comfortably" (I assume that means there is at least a small surplus every month) but could add up to a significant amount over time.

Unlikely that 6 monthly or annual payments would qualify

That's not quite right.  Your executors would have to show that the gift is made as part of normal expenditure.  Annual gifting is fine.  The issue with longer time periods between gifts is if you die early and so haven't established a normal pattern.  Here, contemporaneous evidence of intention is very helpful.  HMRC's manuals even say: "Normal does not necessarily mean regular or annual although gifts made on a regular basis are more likely to meet the normality test".

HMRC's comments about "you pay from your regular monthly income" is wrong.  If someone only income were, for example, a dividend paid once a year then that would be fine.  Similarly, if some years there was plenty of spare income and some years not, the test is to look at it taking the income "one year with another".

And this site (https://financial-advice.co.uk/2021/04/making-tax-efficient-gifts-out-of-surplus-income/) considers that:

• There should be evidence that clearly shows the gift was intended to be made regularly and was part of the giver’s normal expenditure – a good example of this would be an annual amount of £3,600 gross paid into a grandchild’s pension.
• The gift was made out of the post-tax income and was not the proceeds of a transfer of capital assets. Common sources of post-tax income used for gifts can include pension income, rent from property, interest and dividends, or even employment earnings.
• The giver of the gift must still be left with enough of an income to maintain their present standard of living, without having to resort to using capital to meet their needs

Some dividends will be paid biennially, or even quarterly. The requirement is that the gift from income be regular, and not cause a reduction in the giver's standard of living.

However if the intention is to give at longer (than monthly?) intervals, it would certainly be best to record the intention somewhere your executors can find it.

Albermarle

LHW99 said:

[Deleted User] said:

Marcon said:

LHW99 said:

Best option may be the "regular gifts from income" allowance. These don't have to be monthly, could be 6 monthly or annual, as long as there is a recorded intention for the gifts to continue, and you can show that they are surplus to your normal living requirements (as I understand it).

That need not involve any withdrawal from the DC pension, as you say you can "live comfortably" (I assume that means there is at least a small surplus every month) but could add up to a significant amount over time.

Unlikely that 6 monthly or annual payments would qualify

That's not quite right.  Your executors would have to show that the gift is made as part of normal expenditure.  Annual gifting is fine.  The issue with longer time periods between gifts is if you die early and so haven't established a normal pattern.  Here, contemporaneous evidence of intention is very helpful.  HMRC's manuals even say: "Normal does not necessarily mean regular or annual although gifts made on a regular basis are more likely to meet the normality test".

HMRC's comments about "you pay from your regular monthly income" is wrong.  If someone only income were, for example, a dividend paid once a year then that would be fine.  Similarly, if some years there was plenty of spare income and some years not, the test is to look at it taking the income "one year with another".

And this site (https://financial-advice.co.uk/2021/04/making-tax-efficient-gifts-out-of-surplus-income/) considers that:

• There should be evidence that clearly shows the gift was intended to be made regularly and was part of the giver’s normal expenditure – a good example of this would be an annual amount of £3,600 gross paid into a grandchild’s pension.
• The gift was made out of the post-tax income and was not the proceeds of a transfer of capital assets. Common sources of post-tax income used for gifts can include pension income, rent from property, interest and dividends, or even employment earnings.
• The giver of the gift must still be left with enough of an income to maintain their present standard of living, without having to resort to using capital to meet their needs

Some dividends will be paid biennially, or even quarterly. The requirement is that the gift from income be regular, and not cause a reduction in the giver's standard of living.

However if the intention is to give at longer (than monthly?) intervals, it would certainly be best to record the intention somewhere your executors can find it.

If you deliberately increased your withdrawal income from a DC pot so you could 'gift from income', could that be classed as using Capital ( your pension pot) ? 
Just interesting as for some people they could just up the withdrawal rate, say they have excess income, and pass it on as a IHT free gift of surplus income. Is there a limit on how much you can give away each year by this method? 

LHW99

Presumably if you increased the withdrawal from the DC to a point where it was obvious the pot would run out well before you do, it would get caught under Deprivation of Assets.

If there is any suspicion of that, I believe the LA could delve into your affairs quite deeply.

However if you have enough to ensure that you could pay for your end of life care (or never need any) then even a significantly increased withdrawal level could reasonably be judged to be income, allowing tax-free gifting?