Interaction of IHT gift exemptions

Strasbourg1955

Suppose you claim "regular gifts out of income" (for example £2000) and also give one-off gifts (over £250) totalling £1,200.  Can you still roll over £1,800 unused Annual Exemption towards one-off gifts the following year? In other words, is the roll-over feature affected by having claimed regular gifts or are they totally separate? 
Second question, does it matter if the same recipient is in both categories?

Linton

When filling in the IHT forms I explicitly claimed either Gifts from Income or Annual Exemption for each gift.  So it was a matter of choosing a classification that worked in the specific circumstance.  Dont claim an IHT avoidance option you are not actually using.

There were no objections or questions from HMRC

Strasbourg1955

Thanks for the swift reply but I'm not sure it answers my questions.  I am claiming regular-from-income because the deceased made annual presents to relatives e.g. birthday & financial support (totalling over 3k in some years).  The deceased also made some one-off gifts, not regular, over £250 for which I need to use the Annual Exemption.
Question 1: If the one-off gifts don't reach £3k, can I roll over the residue Annual Exemption irrespective of the fact that I have used the regular-from-income for other purposes?
Question 2: If "Nephew George" is on the regular payments list, but also receives a random £400 one year, can that £400 go into the Annual Exemption?

Strasbourg1955

Actually ignore Question 2 because I've found the answer online.  I'd still like Question 1 resolved please!

Linton

Strasbourg1955 said:

Thanks for the swift reply but I'm not sure it answers my questions.  I am claiming regular-from-income because the deceased made annual presents to relatives e.g. birthday & financial support (totalling over 3k in some years).  The deceased also made some one-off gifts, not regular, over £250 for which I need to use the Annual Exemption.
Question 1: If the one-off gifts don't reach £3k, can I roll over the residue Annual Exemption irrespective of the fact that I have used the regular-from-income for other purposes?
Question 2: If "Nephew George" is on the regular payments list, but also receives a random £400 one year, can that £400 go into the Annual Exemption?

I think "regular" gifting  is open to a significant level of interpretation.  There was a key case where the deceased checked his annual accounts at the end of each tax year and gifted any income above expenditure as GFI.  HMRC objected but the judge ruled that since this was the usual practice it could be classified as GFI.

Q(1) You dont lose the £3K exemption if you make GFI.  After all declaring GFI means that the regular-from-income  is not taxable anyway and therefore does not come into the calculation.

Q(2) There isnt a regular receiver of GFI list.  More that there is a list of identifiable regular payments provably from income.  If a payment is not on that list it must be checked whether it is taxable under the £3K limit rules.   The £3K limit rules include an Annual Exemption.

All in my non-lawyer view based on experience of successfully submitting a large GFI list.

Shedman

Strasbourg1955 said:

Actually ignore Question 2 because I've found the answer online.  I'd still like Question 1 resolved please!

Out of interest, and as it may also help others who come across this thread,  what was the answer to question 2 that you found? 

Keep_pedalling

Strasbourg1955 said:

Thanks for the swift reply but I'm not sure it answers my questions.  I am claiming regular-from-income because the deceased made annual presents to relatives e.g. birthday & financial support (totalling over 3k in some years).  The deceased also made some one-off gifts, not regular, over £250 for which I need to use the Annual Exemption.
Question 1: If the one-off gifts don't reach £3k, can I roll over the residue Annual Exemption irrespective of the fact that I have used the regular-from-income for other purposes?
Question 2: If "Nephew George" is on the regular payments list, but also receives a random £400 one year, can that £400 go into the Annual Exemption?

Did the testator actively make gifts from excess income as part of IHT planning or are you trying to do this retrospectively?  If it’s the latter you have a difficult task on your hands in digging up 7 years worth of expenditure.

To answer your question, yes any unused annual exemption can be rolled over to the following year regardless of gets them and whether they also received gifts from excess income or not.

Strasbourg1955

Actually I'm lucky that I have the 7 years of income and expenditure data because there are good files.

Robert_McGeddon

There is a big difference between Capital (Assets) and Revenue (Income).  In summary:-

Capital

IHT is principally a tax on capital, i.e. the assets someone owned at death. I think it is easy to see why HMRC is not keen for taxpayers to gift away their assets in their later years!  The exemptions on capital gifting are relatively small and continually whittled away by inflation. These are:

1 Annual Exemption.  £3,000 as mentioned above. Can go to one or more recipients and if unused in the previous tax year can be carried forward for one year (but one year only).

2 Small Gift Allowance.  £250 per annum to as many people as you like, but cannot be in addition to the Annual Exemption. Birthday and Christmas gifts can be made on top of this.

3 Gifts in contemplation of marriage.  £5,000/£2,500/£1,000 to near family.  Additional to both 1 & 2 above.

These are now pretty miserly, but the key point is once 7 years has passed all normal gifts fall out of the IHT calculation.  It may be worth gifting early – even if caught by the 7-year rule.

 

Income

Recurring Gifts Out Of Surplus Income are separate to, and independent of gifts from Capital. You can gift any surplus income to anyone you like without limit. You need to do this within 2-3 years of the excess arising or it may be deemed to have become capital. Paperwork is vital to:

1 Set out your intention to make regular gifts – write to the first recipients.

2 Keep accurate records demonstrating a surplus has been made (without affecting your standard of living) to support gifts made.  KP made this point and I reiterate it.

HTH