The Dreaded IHT403 - Gifting

Keep_pedalling

No, I was not being sarcastic just misunderstood the question. Trying to do this retrospectively is not easy which is why it is important, if you plan to use this as part of IHT planning, to keep records for your executor from day one. I would certainly lump in things like hire car and meals out taken on holiday with all other holiday costs, but don’t get too hung up on which rows to put them in some things could fit in more than one (car hire could also go in travelling).

As long as you include all expenditure HMrC are not going to punish you for putting some expenditure in the wrong column. 

Linton

The law is open to interpretation.  The best you can do is to act what you consider reasonably and in the spirit of the rules and see if HMRC object.  Ultimately you will only get clarity if a case goes to court, which may be useful for people putting together a claim for Gifts from Income, but probably not something you want to pay for.

The problem HMRC must have is that as soon as you give precise guidance you provide some clever advisor with a loophole.

Dont worry abut the precise wording of the form.  In my case I Iargely ignored that but  rather provided a spreadsheet giving the info they wanted with reference to bank statements which justified each GFI in the expectation that if the numbers looked roughly right HMRC are not going spend hours going through dozens of pages of transactions.  You certainly dont need to go down to the level of receipts for exact expenditure.

The detail I would worry about is that which justifies that the gifts really came from income rather than precisely what the gift was.

msb1234

Honestly, if your level of wealth is such that your estate will be subject to IHT, then you need to see a financial advisor who specialises in that area. It’ll be money well spent.

pysifr

Bedlingtonboy says, "Not sure why you found the manual so unhelpful". It is unhelpful, as there is no guidance as to what "normal expenditure/normal lifestyle/ normal standard of living" means. I phoned HMRC and they refused to answer as they deemed my question as "tax avoidance". I asked where does a one-off payment for a very expensive holiday, or a new car fit into "normal expenditure". There is no guidance by HMRC. The only thing I have found after many many hours of research is this:  . For the avoidance of doubt, expenditure will include income tax and all regular expenditure of an income nature (but not capital expenditure such as a home extension). https://www.mandg.com/wealth/adviser-services/tech-matters/iht-and-estate-planning/exemptions-and-relief/normal-expenditure-out-of-income#maintaining-a-normal-standard-of-living
I assume that this would also apply to such things as buying a new car, going on an expensive holiday etc, where these are paid for out of capital

incus432

Just picked up on this thread as I'm asking similar questions to @BedlingtonBoy & @pysifr and looking at that dreaded form and what is needed to justify gifting out of excess income.

Income query is - what if you are drawing down a SIPP in regular payments ? Is that all 'income' or only the part from the dividends accrued? What about if you hold Acc funds? Is it simpler if you take an annuity? 

On Expenditure HMRC require it to be categorised in a particular way (household biils, entertainment, council tax, travelling costs etc) -ok.  It is simple enough to do this for my main account and show income>>expnditure but I pay into our joint account and to credit cards for household and other bills.  On the face of it it appears that I would have to analyse and categorise statements not only of of my main bank account, but also the joint account. and of the two credit cards for all years in question.  Why would they need to know that granular detail of expenditure?  It might be in my favour to exclude some of the cc spending as it will be one off (like an expensive holiday or a new TV) but if even without doing this if it was still showing enough excess income why would it matter? 

I suspect the answer is HMRC can do as they wish and have no incentive tio make this simpler, and a disincentive to do so. 

Lastly what type of professional would one consult for help on this? Any thoughts on likely fees?

Keep_pedalling

The exemption is fairly simple until you start throwing in stuff like SIPPS and joint incomes and expenditure in to the mix. Probably a job for an accountant to advise on. 

Whether you have ACC or INC funds makes no difference as to what is classed as income but it is probably a lot easier for you if you have INC ones. 

incus432

If you are taking a regular payment from a SIPP in drawdown after TFC - whatever the holdings- how can that not be called income? It certainly is for income tax purposes

poseidon1

incus432 said:

Just picked up on this thread as I'm asking similar questions to @BedlingtonBoy & @pysifr and looking at that dreaded form and what is needed to justify gifting out of excess income.

Income query is - what if you are drawing down a SIPP in regular payments ? Is that all 'income' or only the part from the dividends accrued? What about if you hold Acc funds? Is it simpler if you take an annuity? 

On Expenditure HMRC require it to be categorised in a particular way (household biils, entertainment, council tax, travelling costs etc) -ok.  It is simple enough to do this for my main account and show income>>expnditure but I pay into our joint account and to credit cards for household and other bills.  On the face of it it appears that I would have to analyse and categorise statements not only of of my main bank account, but also the joint account. and of the two credit cards for all years in question.  Why would they need to know that granular detail of expenditure?  It might be in my favour to exclude some of the cc spending as it will be one off (like an expensive holiday or a new TV) but if even without doing this if it was still showing enough excess income why would it matter? 

I suspect the answer is HMRC can do as they wish and have no incentive tio make this simpler, and a disincentive to do so. 

Lastly what type of professional would one consult for help on this? Any thoughts on likely fees?

Sipp drawdown  receipts and in particular UFPLSs for the purposes of the gifts out of surplus income exemption,  was queried direct with HMRC - the link below was the response.

 Effectively, you can completely ignore the internal sources of your drawdown receipts, what you receive is considered income for the purposes of the exemption.

https://techzone.abrdn.com/public/iht-est-plan/gift-surplus-pension

Furthermore, see below a general briefing note I shared about the exemption, in a separate thread on the Pensions forum.

https://www.gabyhardwicke.co.uk/briefing-notes-and-faqs/inheritance-tax-exemption-for-gifts-out-of-surplus-income/#:~:text=If you prepare income tax,gifts out of surplus income

incus432

This is very useful on the income side and deeming withdrawals froma  SIPP to be always income makes much more sense than trying to analyse how it  is derived. 

On this quote about ISA income though, would any net withdrawal from the ISA count as income (for this purpose) not obvs for income tax)?  Or do you have to assess how much is interest and how much capital?

The other questions were on th expenditure side. Has anyone submitted the form with an attachment in lieu of page 8 showing a broader brush breakdown? eg

Income form pension   40000

Income from SIPP       10000

Minus income tax.        -8000

Net income.  42000

Expenditure

To joint account (for household bills inc food, entertainment, council tax, water, insurance, travel)  12000

To credit cards (for other household bills inc car and house insurance, entertainment, travel, holidays) 15000

Total expenditure   27000

Surplus income 15000

Is there an obvious reason this would be unacceptable if backed up with annotated bank account statements?

Notepad_Phil

poseidon1 said:

incus432 said:

Just picked up on this thread as I'm asking similar questions to @BedlingtonBoy & @pysifr and looking at that dreaded form and what is needed to justify gifting out of excess income.

Income query is - what if you are drawing down a SIPP in regular payments ? Is that all 'income' or only the part from the dividends accrued? What about if you hold Acc funds? Is it simpler if you take an annuity? 

On Expenditure HMRC require it to be categorised in a particular way (household biils, entertainment, council tax, travelling costs etc) -ok.  It is simple enough to do this for my main account and show income>>expnditure but I pay into our joint account and to credit cards for household and other bills.  On the face of it it appears that I would have to analyse and categorise statements not only of of my main bank account, but also the joint account. and of the two credit cards for all years in question.  Why would they need to know that granular detail of expenditure?  It might be in my favour to exclude some of the cc spending as it will be one off (like an expensive holiday or a new TV) but if even without doing this if it was still showing enough excess income why would it matter? 

I suspect the answer is HMRC can do as they wish and have no incentive tio make this simpler, and a disincentive to do so. 

Lastly what type of professional would one consult for help on this? Any thoughts on likely fees?

Sipp drawdown  receipts and in particular UFPLSs for the purposes of the gifts out of surplus income exemption,  was queried direct with HMRC - the link below was the response.

 Effectively, you can completely ignore the internal sources of your drawdown receipts, what you receive is considered income for the purposes of the exemption.

https://techzone.abrdn.com/public/iht-est-plan/gift-surplus-pension

Furthermore, see below a general briefing note I shared about the exemption, in a separate thread on the Pensions forum.

https://www.gabyhardwicke.co.uk/briefing-notes-and-faqs/inheritance-tax-exemption-for-gifts-out-of-surplus-income/#:~:text=If you prepare income tax,gifts out of surplus income

Though I wonder whether that hmrc response will continue to hold once pension pots are brought within the inheritance tax net - using heavy drawdown rates as a possible tactic to gift money away is one thing when the final pension pot wouldn't have inheritance tax placed on it, I would think it's a completely different kettle of fish when the hmrc start missing out on 40% of what they would otherwise be due.