Gifts out of income & Normal Expenditure

pysifr

My wife and I make monetary gifts to children and grandchildren - out of income. There is a lot of guidance on what such gifts are, but very little about "normal expenditure" or "normal living expenses", or normal standard of living". For IHT purposes, we were advised that we need to reduce our investments, so a few years ago, we cashed in some stocks & shares and splurged over £20,000 taking our two daughters, their husbands, and three grandchildren on a special holiday. Where does that fit into "normal expenditure" or "normal living expenses" in terms of "gifts out of income". Clearly in that year, we were well above our "normal expenditure". On a less "frivolous" note, in another year, we re-carpeted half the house, again financed by cashing in some investments. Are these once or twice in a lifetime expense classed as "normal living expenses", or do we ignore them as far as form IHT403 is concerned?

Hal17

That is an interesting question and something I have been thinking about. My feeling is that this would be regarded as spending from your capital and not "normal living expenses". So no need to record as part of the IHT403 form, but I don't know if this is actually correct! 

Keep_pedalling

If you are spending savings on things like holidays and carpets then you don’t have excess income. Have a look at IHT 400 to see what info your executors would need provide if they are claiming gifts from excess income.

https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf

Holidays and household expenditure definitely falls under expenditure. 

Does your joint net worth exceed £1M. 

silvercar

There is an argument that you taking family on a holiday is you spending money rather than gifting. The holiday is for your own enjoyment that you paid for. 

Linton

pysifr said:

My wife and I make monetary gifts to children and grandchildren - out of income. There is a lot of guidance on what such gifts are, but very little about "normal expenditure" or "normal living expenses", or normal standard of living". For IHT purposes, we were advised that we need to reduce our investments, so a few years ago, we cashed in some stocks & shares and splurged over £20,000 taking our two daughters, their husbands, and three grandchildren on a special holiday. Where does that fit into "normal expenditure" or "normal living expenses" in terms of "gifts out of income". Clearly in that year, we were well above our "normal expenditure". On a less "frivolous" note, in another year, we re-carpeted half the house, again financed by cashing in some investments. Are these once or twice in a lifetime expense classed as "normal living expenses", or do we ignore them as far as form IHT403 is concerned?

The key criterion is that you cashed in savings to make the gift, if it was a gift, so the money cannot have come from income.

I do not see why IHT403 could be relevent to carpeting your house.  It had nothing to do with gifts.  They are not normal expenditure (eg you cannot assume that you are going to carpet your house every year and gift the money if you dont).  If you wanted to categorise the expenditure perhaps capital/maintenance would be appriopriate but you dont.

The general rule I would suggest is just be sensible using the normal meaning of words.  Dont try and be "clever" with GFI.

Robert_McGeddon

pysifr said:

so a few years ago, we cashed in some stocks & shares and splurged over £20,000 taking our two daughters, their husbands, and three grandchildren on a special holiday.

Surely N/a for gifting out of income - you haven't established a regular pattern of gifting.  It looks one-off and in part may be a PET.

pysifr said:

 in another year, we re-carpeted half the house, again financed by cashing in some investments.

Part of your regular expenditure.  One year carpets, next year new fridge then repainting the house and so on. You need to offset this class of expenditure against income before making gifts out of income.

pysifr

Keep_pedalling, Yes our joint net worth exceeds 1 million. Yes, I have no issue with "normal holidays and household expenditure" but one-offs such as a very expensive holiday to celebrate a significant anniversary, or a car (every 10 years), or new carpets (last carpeted 15 years ago), all paid for by cashing-in ISAs, these are not "normal Expenditure"

Marcon

pysifr said:

For IHT purposes, we were advised that we need to reduce our investments, so a few years ago, we cashed in some stocks & shares and splurged over £20,000 taking our two daughters, their husbands, and three grandchildren on a special holiday. Where does that fit into "normal expenditure" or "normal living expenses" in terms of "gifts out of income". 

The holiday clearly wasn't a gift out of income - you've said you needed to 'reduce your investments'. 

See https://www.thisismoney.co.uk/money/financial-planning/article-13961057/We-want-family-holiday-inheritance-tax-avoidance-gifting-seven-year-rule.html#:~:text=1.,this%20exemption%20doesn't%20apply.