The Dreaded IHT403 - Gifting

BedlingtonBoy

Looking for some help in completing HMRC form IHT403, specifically gifting from income.

There don't appear to be any guidance notes whatsoever and I've now written to HMRC

four times asking for clarity - tried phoning, but lost the will to live while waiting 

to get through.

Attempt one never got a reply as I didn't send it 'to sign for' so I suspect it's just 

been binned, the reply for attempt two never even mentioned IHT403 or gifting from income,

just a mention of Annual Exemption and Small Gifts.The reply to attempt three gave no 

specifics and stated that they "can't give tax planning advice". Ditto attempt four.

Attempt 4 did mention IHT Manual 14231 which is about expenditure out of income, yet it is 

guidance only with few examples and is very much open to interpretation. 

Also tried to raise a complaint online, no mention of Inheritance Tax whatsoever !

Can't see how anyone can complete this form when it is so open to interpretation and I'd

guess that it's very difficult to meet the criteria for gifting from income which seems to 

be exactly what HMRC want.

Questions

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My wife and I have a joint bank account which contains all of our regular income and

all bills are paid from it.

If we both need to complete IHT403 how should we apportion outgoings – for example 

would we put 50% of Council Tax each, 100% each, split it in proportion to our income 

or is there some other undocumented rule ? 

Is the Salary / Pension figures supposed to be gross or net of tax / National Insurance ?

Why no mention of other offtakes like National Insurance / pension contributions all of which

bring down disposable income ?

One of the expenditure columns is marked ‘Holidays’ what should be included here ?

Easy enough to get the cost of a package holiday from old credit card statements but would 

you also expect receipts from any excursions, meals out, drinks bought etc ?

What proof is required for income / expenditure – would you expect to keep receipts for 

everything above a certain value ? (If so what is the value ?)

 

How long before ‘income’ becomes ‘capital’ ?

For example if we receive dividend on shares do we need to gift it within a certain timeframe 

before it is considered to become capital – if so what is the timeframe ?

Gifts out of income must be part of normal expenditure and need to be 

‘part of a regular series of gifts’, can you explain what evidence is required to prove this ?

How is ‘regular’ defined, one gift a week / month / year / decade ?

There is a section on gifting from regular income, one item mentions 

“paying into a savings account for a child under 18” – is this meant to be just an example 

of a type of gift or does it mean that you can’t gift into someone elses account if they are 

over the age of 18 ?

Presumably it's OK to slip them a bundle of £20 notes in an envelope instead. 

Personally I can't see how asking HMRC for clarification on what goes onto their form

is asking for tax planning advice and I suspect they just can't be bothered to come up

with any guidance notes.  

Sure there are loads of other questions, but any help gratefully received.

Keep_pedalling

Sorry to answer your questions with more questions but it is important to understand your situation to give some useful answers.

First off do you actually have excess income to gift? If you have then it needs to very well documented. 

If for instance your income is £30k per annum your spouses income is £20k per annum and your joint expenditure is £40k then you have excess income of £10k. The simplest thing to do in this case is to allocate your expenditure 50/50 then all the excess income is yours and your spouse has none. 

It would also help to know the current value of your combined estates and how much of that is tied up in your home?

BedlingtonBoy

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

Keep_pedalling

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

I would just keep a spreadsheet showing I & E broken down as it is on IHT403.

Gifting from excess income helps with preventing your estate getting even deeper into IHT territory, if you are already well in to it then now might be a good time to make some larger gifts to take advantage of the 7 year rule incase it changes in the next budget.  

BikingBud

Is gifting likely to be determined as deprivation?

Marcon

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

Not sure why you found the manual so unhelpful. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 If you follow the various links, they do give pretty reasonable guidance.

If you're still unsure, maybe some professional help would be your best way forward? 

Keep_pedalling

BikingBud said:

Is gifting likely to be determined as deprivation?

Unlikely if you are in IHT territory. 

BikingBud

Keep_pedalling said:

BikingBud said:

Is gifting likely to be determined as deprivation?

Unlikely if you are in IHT territory. 

Thanks but isn't the point that you are trying not to be in IHT territory and by longer term, persistent planned gifting your capital doesn't grow. 

Keep_pedalling

BikingBud said:

Keep_pedalling said:

BikingBud said:

Is gifting likely to be determined as deprivation?

Unlikely if you are in IHT territory. 

Thanks but isn't the point that you are trying not to be in IHT territory and by longer term, persistent planned gifting your capital doesn't grow. 

As a married couple can leave up to £1M IHT free deprivation of assets is highly unlikely to be an issue for people with that level of wealth and a substantial excess income.

BedlingtonBoy

Keep_pedalling said:

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

I would just keep a spreadsheet showing I & E broken down as it is on IHT403.

Gifting from excess income helps with preventing your estate getting even deeper into IHT territory, if you are already well in to it then now might be a good time to make some larger gifts to take advantage of the 7 year rule incase it changes in the next budget.  

Not sure if you're being sarcastic or not ... the problem isn't creating a spreadsheet, the problem is getting the figures to put in  it. For example, as I mentioned in my original post, one of the columns is 'Holidays' - I can get the package price from old credit card statements, but there's no guidance from HMRC if this should also include car hire, meals out, drink etc, Would someone be expected to get receipts for everything ? Total income / expenditure is relatively straightforward, but splitting it down into these categories with no guidance is practically impossible, especially covering a 7 year period.

BedlingtonBoy

Marcon said:

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

Not sure why you found the manual so unhelpful. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 If you follow the various links, they do give pretty reasonable guidance.

If you're still unsure, maybe some professional help would be your best way forward? 

Marcon said:

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

Not sure why you found the manual so unhelpful. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 If you follow the various links, they do give pretty reasonable guidance.

If you're still unsure, maybe some professional help would be your best way forward? 

Marcon said:

BedlingtonBoy said:

We do have excess income to gift and I have collected the figures for IHT403. You say it needs to be well documented, have you any idea what documentation is required by HMRC ? Don't really want to give out personal information on our finances to a complete stranger, but we are in the area of having to pay inheritance tax even after deducting all allowances.

Not sure why you found the manual so unhelpful. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 If you follow the various links, they do give pretty reasonable guidance.

If you're still unsure, maybe some professional help would be your best way forward? 

Marcon, that, of course, is one of the problems. That manual does contain some guidance but it's very much open to interpretation and you can never get the same interpretation from different HMRC employees. Maybe HMRC could just write some guidance notes for IHT403 same as all their other forms ?