payments to spouse for household expenses

StitchInTime99

Husband and wife, both with independent income. No joint accounts.

Husband gives wife £2000-£2500 per month for household expenses (24-30 p.a)

Husband records this 24-30k as part of his 'normal expenditure'. Thus reducing the amount of surplus income from which he could otherwise have made 'gifts out of income'.

So if she used the transfer from husband to pay all of her 'living costs' car, clothes, food etc (husband settles all utility and other bills).
Then it means her own income is barely spent.

Could she then gift all of this as gift out of income. 

I am so confused and cannot understand why things would have been done this way.
It doesn't make sense why the husband didn't just do it as a 'gift out of (his own) income. The gift recipients are the same two individuals for gifts from both husband and wife.

Has some sort of PET been involved because the husbands transfer (tax exempt) has meant she didn't have to touch her own income and thus gifted almost all of it.

Is this sort of behaviour the equivalent of have a joint bank account whereby the wife can spend the husbands income and therefore not spend her own?

Please help, I hope I explained this well enough and it can be understood. Thank you 
 

lisyloo

I can't see any benefit. The gift rules are the same i.e. £3K each unless it's a wedding gift
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK (www.gov.uk)

What relevance do you think income is to gifts?

I don't see any benefit to what they are doing.

DE_612183

are both these people still alive?

Keep_pedalling

Assuming this is related to your previous thread and that his wife is still alive, she can’t simply retrospectively gift a large sum equivalent to several years of expenses and claim it as gifts for EI. If she now has excess income she should start gifting the excess now but can’t use excess income going back more than two years and I am pretty sure money transferred from a spouse cannot be classed as income.

StitchInTime99

Keep_pedalling said:

Assuming this is related to your previous thread and that his wife is still alive, she can’t simply retrospectively gift a large sum equivalent to several years of expenses and claim it as gifts for EI. If she now has excess income she should start gifting the excess now but can’t use excess income going back more than two years and I am pretty sure money transferred from a spouse cannot be classed as income.

hi keep_pedalling, we are dealing with 3 separate lots of probate at the same time. sorry the questions must look like they cross over but they are for different people with completely different spouses (ie. none of the 3 deceased were married to each other). We are totally overwhelmed. 

no they have all passed.... we are trying to make sense of no tax planning, crazy gifting, crazy money moving round in circles. Not to dodge anything it is just really strange ways of doing things that we simply do not understand.

the money from the spouse was given to her and deducted off his expenditure from his annual income.
she has then spent that sum on her lifestyle and house running costs like the cleaner and food shopping. 
She had her own income too, but since she was spending his, she did not need to spend her own so gifted most of hers and noted it as 'gifts out of her income'.
But we kind of feel that she only had that surplus income on account of the husband paying for everything (ie the household expenses allowance he gave her).

Brie

So he is committing some sort of fraud by claiming that the money that gets spent on day to day living expenses is actually a business expense that lowers his over all taxable income?

Or have I misunderstood?

StitchInTime99

no mention was made of a business expense. No he paid tax on all of his income (apart from a few things that were not taxable).
What I was saying was that, after paying tax and all of his usual expenditure (bills/hols/car/etc.), he had a sum of money left over
He split this surplus income on a regular pattern between two recipients. This is exempt from tax (IHT) as he did not need this income to maintain his standard of living.

Our issue was that he gave 30k a year to his wife (out of his income not from savings). This was to pay the household expenses. He had paid the income tax on it already.

So my question was: since she was spending this 30k on her living costs, it meant her own income was not spent by her.
Thus she (after paying income tax) had a lot of surplus money to give away each year as gift out of income because she did not need the income.

So we are just looking to understand if HMRC would see it as she should have used her own income to pay her expenses and therefore not used the 'household allowance' given by him. 
He was old fashioned. The man gave the woman a sum of money to run the household whilst he worked. 

How do you demonstrate that because of the husband paying the household costs she had no use of her income so she gave it away.
All the money is in the same bank account so could hmrc say, well she used her earned income to run the house and therefore gifted the 'gift' given to her by the husband.
Rather than saying she used the allowance from husband to run the house and gifted most of her earned income as 'gift out of income'
 

Keep_pedalling

Thanks for the clarification. I am pretty sure that her gifting cannot be classed as from excess income simply because the monthly allowance from her husband is not income so HMRC will only look at her own income and expenditure. 

StitchInTime99

thats what we thought might be the case. that her gifting could be argued by hmrc as being a PET and not an outright gift

MobileSaver

StitchInTime99 said:

since she was spending this 30k on her living costs, it meant her own income was not spent by her.

Was National Insurance and Income Tax being paid on that 30k? If not then it wasn't income and so the wife must have been using her own income for the gifts...

Keep_pedalling

MobileSaver said:

StitchInTime99 said:

since she was spending this 30k on her living costs, it meant her own income was not spent by her.

Was National Insurance and Income Tax being paid on that 30k? If not then it wasn't income and so the wife must have been using her own income for the gifts...

Not all income is subject to those taxes, State pension and  Interest and dividends on ISAs for instance. Both those are classed as income. Gifts from a spouse however are definitely not income.