The Dreaded IHT403 - Gifting

Linton

With S&S ISAs the whole lot is savings, as with any other (non pension) investment accont, with dividends and interest counted as income.  Income becomes savings after 2 years.  So when you withdraw money the past 2 years of dividends/interest could be counted as income. Anything more than that would be from savings. So yes the executor may have to analyse the details.  If you are the gift donor rather than the executor I suggest you keep your financial affairs simple for the executor. 

I successfuly claimed Gifts from Income giving attachments with annual summaries of the details together with bank statements in the way you suggest.

incus432

As the donor I'm planning to - and working out how to simplify and just what I need to record.  I do wonder if I need to get some professsional advice too though, as a check. Would it be a tax accountant with particular expertise in or qualification in inheritance tax? 

Am also considering the option of taking a lifetime annuity out my SIPP with a long guarantee.  I'd pay 40% on it but it would probably take us out of IHT territory.

MarzipanCrumble

I agree with OP that guidance is not crystal clear.  As I do an income and expenditure spreadsheet anyway, broken down in much more detail than IHT403 generic headings, I referenced my mimic spreadsheet for 403 to my I&E tab. 

I also added a Comment column to my mimic 403 tab and detailed what went under the the headed rows.  Once set up it is easy to copy and paste annually - but you do need to check that the reference formula are still correct and not picking up rubbish.


As an example:  Under Entertainment I would count all subscriptions to mags, TV, interest groups, dining out, theatre, cinema and the like.  

incus432

Yes I agree it's unclear .  But more and more people are going to fall into IHT due to frozen bands and increasing house prices, so the line it only affects a tiny % of estates may be true now but won't be in 5-10 years.  The semi in the SE we bought for 124k in 1995 is now pushing 1 million. And it's not just those that do have to pay IHT it's the much bigger number that have to think about and plan for it - and try to make sense of what guidance there is. 

I salute your diligence with record keeping but I do think this really shouldn't be necessary for HMRC - why should they care whether your normal spending is on food shopping or on meals out or fine wines or at the bookies?  I suspect they don't really but it's partly intentional to make you unsure and put you off, and there no incentive for them to simplify it.

Keep_pedalling

incus432 said:

Yes I agree it's unclear .  But more and more people are going to fall into IHT due to frozen bands and increasing house prices, so the line it only affects a tiny % of estates may be true now but won't be in 5-10 years.  The semi in the SE we bought for 124k in 1995 is now pushing 1 million. And it's not just those that do have to pay IHT it's the much bigger number that have to think about and plan for it - and try to make sense of what guidance there is. 

I salute your diligence with record keeping but I do think this really shouldn't be necessary for HMRC - why should they care whether your normal spending is on food shopping or on meals out or fine wines or at the bookies?  I suspect they don't really but it's partly intentional to make you unsure and put you off, and there no incentive for them to simplify it.

How else is an executor going to be able claim there is actually excess income? In most cases HMRC will take the figures that have been submitted but if they do actually question it the executor needs the numbers to back it up. The important thing the testator needs to do is protect their executors by leaving good records.

We don't have excess income but if we did I don’t think we would use this exemption, there are other ways of reducing your IHT liability that are far less complex. 

incus432

Keep_pedalling said:

How else is an executor going to be able claim there is actually excess income? In most cases HMRC will take the figures that have been submitted but if they do actually question it the executor needs the numbers to back it up. The important thing the testator needs to do is protect their executors by leaving good records.

We don't have excess income but if we did I don’t think we would use this exemption, there are other ways of reducing your IHT liability that are far less complex. 

I am not objecting to the need to keep good records. Just apparently requiring this particular breakdown which is very difficult if you have multiple accounts and credit cards. And it's superfluous detail. It seems that others have successfully submitted alternative analysis.

I'd be very happy to learn. I'm aware living at least 7 years after gifting is the simplest!

MarzipanCrumble

Yes, if we could only predict when we die.............

I am of an age where, because I live alone, a fall where I break something could kill me off, or I could get flattened by a Deliveroo electric cycle going at illegal speed of 16+++ mph (happened to a neighbour who died of resulting 'incidents/events' 18 months later.  So yes, I have gifted with a view to beating the 7 yr rule, but I also have surplus income.  

Currently I am dipping in a toe with gifting surplus income - testing (my) risk comfort and the spreadsheet.  But I am not a spender, never have been, so it seems sensible to me as a way of getting rid of excess income.

poseidon1

Reading all these posts and people agonising how to make effective use of this particular exemption, indicates that the annual exemption IHT regime needs a  overhaul and simplification. 

As I indicated in another post, IHT and its predecessor death taxes ( Capital Transfer Tax and death duty ) were devised to catch a very small percentage of the population who were assumed to be more than adequately advised by lawyers and accountants  ( upper middle classes and the 'landed gentry' ). 

 Scroll forward 70 years or so, and we have  a large and growing populace who largely  via house price inflation ( and now pension pots), have been drawn into a very complex tax regime  which many simply are not equipped to deal with, and the general quality of solicitor advice available to this lower market place leaves much to be desired.

So I would sweep away the multitude of IHT exemptions ( small gifts, gifts on marriage, gifts to political parties, excess income , £3000  etc) in favour of 1 single annual exemption of £15,000 to £20,000, together with unlimited very large gifts requiring 7 year survival.

A simple annual exemption of  say £15,000 ( per spouse) to be deployed in anyway they deem fit should be adequate for the bulk of the population, with the exemption rolled over for a year if not used previously. 

£15,000 would also be a far more reasonable sum for singletons with no children of their own where the current available exemptions are very much pitched in favour of the traditional nuclear family.

IHT is long overdue an overhaul and modernisation, and is now simply unfit for a modern populace who do not have the same access to high level  ( expensive ) advice enjoyed by the wealthier upper middle classes. This and other threads  on the complex gifts out of excess income exemption is indicative  of this.

incus432

I couldn't agree more @poseidon1 . Unfit for purpose now, and I assume the workload will eventually swamp HMRC unless the regime is simplified. They might be persuaded if it could be argued they would get the same tax take with a simpler system

BikingBud

incus432 said:

I couldn't agree more @poseidon1 . Unfit for purpose now, and I assume the workload will eventually swamp HMRC unless the regime is simplified. They might be persuaded if it could be argued they would get the same tax take with a simpler system

Do HMRC care how much they get? Surely that is the concern of the Government and especially the Chancellor.

HMRC just want to see the laws applied but I get entirely the point about increasing complexity and it is not confined to IHT it is across all methods, as evidenced by the number of differing modes of clawing money back; National Insurance, VAT, Ins Premium, SDLT to name but a few.