Contributions to children’s JISA/ ISA in context of IHT

RNV

Hello all

Yes, Im one of those strongly against IHT. We are not elite, btw - just a normal professional couple living in SE having paid (from taxed income) a huge  morgage on our normal 4bed house.  Started from 0 building up what we have. And we do want to pass some of it to our children.  

We started our family quite late, so children are still quite young. Things like early gifting say 100k -200k will not work as yet. 

My questions today are around JISA’s /ISA’s. We are saving allowable 9k in their JISAs. Am i right it is not counted towards our estate’s IHT liability if we die tomorrow? 

And then, when their JISAs become ISAs (at 16?),  can we continue transferring there fully outside of IHT? Or will it be regarded as gifts subject to 7years at that point?

thanks

Keep_pedalling

You both have an annual exemption of £3,000 so anything you gift your children above that is a PET and stays in your estate for 7 years. You may also be able to make exempt gifts if your annual income exceeds your annual expenditure. 

I might be in the minority here, but why is taxing unearned income in the form of inheritance a bad thing when earned income is taxed? 

RNV

Keep_pedalling said:

You both have an annual exemption of £3,000 so anything you gift your children above that is a PET and stays in your estate for 7 years. You may also be able to make exempt gifts if your annual income exceeds your annual expenditure. 

I might be in the minority here, but why is taxing unearned income in the form of inheritance a bad thing when earned income is taxed? 

Thanks,  so sounds like these 9k contributions not helping anything really… I will have to read more on this to fully understand

Re 2nd para because it was our decision to study hard (2 degrees and professional qualifications  each), then work hard (long hrs, quite stressfull jobs, working on holidays at nights) to save for our own children. We could have had a much easier life….

Keep_pedalling

RNV said:

Keep_pedalling said:

You both have an annual exemption of £3,000 so anything you gift your children above that is a PET and stays in your estate for 7 years. You may also be able to make exempt gifts if your annual income exceeds your annual expenditure. 

I might be in the minority here, but why is taxing unearned income in the form of inheritance a bad thing when earned income is taxed? 

Thanks,  so sounds like these 9k contributions not helping anything really… I will have to read more on this to fully understand

Re 2nd para because it was our decision to study hard (2 degrees and professional qualifications  each), then work hard (long hrs, quite stressfull jobs, working on holidays at nights) to save for our own children. We could have had a much easier life….

I would not say your ISA contributions are not achieving anything, the chances of both of you dying within 7 years are pretty small so that it is highly likely that this will pass from your estate before you die and you are  building up some nice savings for your children (although they could blow that as soon as they are 18). Under current rules you can leave your children £1M tax free (although that may change in the budget).

RNV

Thanks again. The JISA’s contributions are currently transferred regularly monthly from a joint account (into which we both transfer from individual accounts where to salaries are paid). 

Do we need to register these as gifts (or otherwise) in whatever form ?  Also, is it better if we transfer each directly from our individual accounts ?

valueman1

You should set up a Junior SIPP and contribute £2,880 pa, gov’t will give extra 25%.

silvercar

RNV said:

Thanks again. The JISA’s contributions are currently transferred regularly monthly from a joint account (into which we both transfer from individual accounts where to salaries are paid). 

Do we need to register these as gifts (or otherwise) in whatever form ?  Also, is it better if we transfer each directly from our individual accounts ?

Im expecting these would be exempt as they are regular gifts out of income. We did similar, paying out of income into HTB ISAs for our kids.

kempiejon

RNV said:

Thanks again. The JISA’s contributions are currently transferred regularly monthly from a joint account (into which we both transfer from individual accounts where to salaries are paid). 

Do we need to register these as gifts (or otherwise) in whatever form ?  Also, is it better if we transfer each directly from our individual accounts ?

I suspect that those gifts out of regular income might be exempted. It'll be handier if documented and staying alive mitigates the problem. It'd be worth some more checking. I've always believed such regular monthly amounts can be out of IHT scope as soon as they're given.

some details here https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14255

RNV

valueman1 said:

You should set up a Junior SIPP and contribute £2,880 pa, gov’t will give extra 25%.

Thanks, thought about that but dismissed for the time being - too far, the access age will prob be at least 60 by the time they retire… Trying to front load into their lives instead …. 

We will hopefully be both around for at least another 20 years, bar any terminal aggresive illness… But we wont work for that long, so any gifts in a relatively near future will not be from “earned” income

Keep_pedalling

kempiejon said:

RNV said:

Thanks again. The JISA’s contributions are currently transferred regularly monthly from a joint account (into which we both transfer from individual accounts where to salaries are paid). 

Do we need to register these as gifts (or otherwise) in whatever form ?  Also, is it better if we transfer each directly from our individual accounts ?

I suspect that those gifts out of regular income might be exempted. It'll be handier if documented and staying alive mitigates the problem. It'd be worth some more checking. I've always believed such regular monthly amounts can be out of IHT scope as soon as they're given.

some details here https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14255

It has to be from excess income. If you look at form IHT 403 you will see exactly what info HMRC require from an executor, which requires good record keeping if you don’t want to leave your executors a difficult task.

RNV

thanks again. Will better start a spreadsheet going.  

One question remains - do we better transfer each from personal accounts ? Or joint have the same outcome in this regard (when we fill in our individual Form 403 spreadsheets for half the amount)?