Income, Expenditure and Gifting from Excess Income

DT2001

SouthCoastBoy said:

DT2001 said:

SouthCoastBoy said:

I an just starting gifting to my two children, 25k each at the moment. I have updated my records that sit alongside my will informing the executor of amount, date and who it was gifted to. 

As I am leaving everything to my wife as long as one of us survives the next 7 years we will be OK for iht from this gift perspective 

Are you sure? I think I read that if YOU gift and died within 7 years it would not be outside YOUR estate. It would not be part of the IHT free transfer to your wife as it has been gifted by you. So please check 

It may reduce the allowance I pass over to my wife, I.e. instead of 325k it would 275k, but my understanding is it would not go over any thresholds so no iht tax to pay. The online hmrc calculator appeared to confirm this, unless I have interpreted it incorrectly?

That is how I have read it - your £50k gift would be part of your £325k allowance. My OH is younger than me and female so in the same situation the gift would be from her (just playing the life expectancy odds) - if I wanted to use my funds I could make a gift to my OH and she could gift to the children.

Do you utilise gifting from excess income as I know you are still working? 

BikingBud

SouthCoastBoy said:

DT2001 said:

SouthCoastBoy said:

I an just starting gifting to my two children, 25k each at the moment. I have updated my records that sit alongside my will informing the executor of amount, date and who it was gifted to. 

As I am leaving everything to my wife as long as one of us survives the next 7 years we will be OK for iht from this gift perspective 

Are you sure? I think I read that if YOU gift and died within 7 years it would not be outside YOUR estate. It would not be part of the IHT free transfer to your wife as it has been gifted by you. So please check 

It may reduce the allowance I pass over to my wife, I.e. instead of 325k it would 275k, but my understanding is it would not go over any thresholds so no iht tax to pay. The online hmrc calculator appeared to confirm this, unless I have interpreted it incorrectly?

Is that the case?

I thought you could pass everything to your wife, without IHT, but when that is subsequently passed on there is a £325k limit, why would that reduce?

But if you gift to others then obviously it hasn't been passed to your wife and is subject to the 7 year rule for PET.

If I understand correctly, your spouse can't claw ownership of the gift back and treat it as theirs to get a 7 year buffer.

You may have go the "correct answer" (what you want to hear) by virtue of the figures involved but I am not sure you have the correct logic.

I am with @DT2002 but certain someone can clarify.

SouthCoastBoy

I don't see how there would be any iht to pay as I have a 325k allowance but only used 50k of it. 

I don't see it as gifted from income as gifting it as a lump sum, however I do save around 24k a year in my current job, so it is from excess income, maybe it accounts as gifting from income?

fuzzzzy

SouthCoastBoy said:

I don't see how there would be any iht to pay as I have a 325k allowance but only used 50k of it. 

I don't see it as gifted from income as gifting it as a lump sum, however I do save around 24k a year in my current job, so it is from excess income, maybe it accounts as gifting from income?

I think you are correct, there would be no IHT to pay.

If you were to die within 7 years you would just pass on £275k allowance to your wife.

If you were to survive 7 years the gifts would fall out of your estate and you would still have £325k allowance to pass on.

If you are going to have £24k excess income this year and intend to start gifting regularly to your kids from income why don't you class this year as the start. If you haven't made any other gifts this year you also have the £3k allowance (another £3k too if you did not gift last year).

So you could allocate £12k for each child as a gift from income, £1.5k each from the tax free allowance, and £11.5k each as a PET.

DT2001

SouthCoastBoy said:

I don't see how there would be any iht to pay as I have a 325k allowance but only used 50k of it. 

I don't see it as gifted from income as gifting it as a lump sum, however I do save around 24k a year in my current job, so it is from excess income, maybe it accounts as gifting from income?

No IHT to pay if you die within 7 years but a reduced allowance for your OH to use. This potentially means more IHT when your OH passes away.

If you have excess income and can meet the criteria for regular gifts - see https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14000 you can potentially help your children without any possibility of impacting on your £325k allowance.

SouthCoastBoy

Thks for the links, reading the documentation, specifically IHTM14250, I think i will be able to gift the 50k from income. In the document it says the following,

"If there is no evidence to the contrary, we consider that income becomes capital after a period of two years. Evidence to the contrary could impact either way as income"

I have unspent income of over 50k over the last two years especially as before the current job (started June 23) I had excess income of around 4k a month and current job is just over 2k per mth.

I will put a note in with my will laying out the facts and why I have assessed it as coming out of income.

Linton

SouthCoastBoy said:

Thks for the links, reading the documentation, specifically IHTM14250, I think i will be able to gift the 50k from income. In the document it says the following,

"If there is no evidence to the contrary, we consider that income becomes capital after a period of two years. Evidence to the contrary could impact either way as income"

I have unspent income of over 50k over the last two years especially as before the current job (started June 23) I had excess income of around 4k a month and current job is just over 2k per mth.

I will put a note in with my will laying out the facts and why I have assessed it as coming out of income.

Have you considered the requirement that the gifts should form part of your normal expenditure? See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14241?  Your gifting should follow a regular pattern.  A one-off gifting of 2 years of spare income would not satisfy the requirement unless it was repeated in future years.

SouthCoastBoy

Linton said:

SouthCoastBoy said:

Thks for the links, reading the documentation, specifically IHTM14250, I think i will be able to gift the 50k from income. In the document it says the following,

"If there is no evidence to the contrary, we consider that income becomes capital after a period of two years. Evidence to the contrary could impact either way as income"

I have unspent income of over 50k over the last two years especially as before the current job (started June 23) I had excess income of around 4k a month and current job is just over 2k per mth.

I will put a note in with my will laying out the facts and why I have assessed it as coming out of income.

Have you considered the requirement that the gifts should form part of your normal expenditure? See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14241?  Your gifting should follow a regular pattern.  A one-off gifting of 2 years of spare income would not satisfy the requirement unless it was repeated in future years.

No I hadn't, will need to read up on it. Hopefully it is all futile, I just need to make sure I live for another 7 years.

newatc

I'm thinking of giving money to the children from excess income , looking at IHT 403 what I don't understand is how I deal with our joints accounts. We have always had a joint account and all in/outs go through that. 
So , for example, I have an income of £40k, my wife has an income of 10k and we have joint expenditure of £30k. 
Is my excess income £10k (40-30) or 25k (40 - half of 30).

Additionally I gift the excess to the children could we both additionally give 3k of exempt gifts?

LHW99

My inexpert take, is that if either of you can sign for payments etc on the account, then you are effectively "giving" your spouse some of your income (untaxed as passing to spouse), so you have £25k each income and £15k each expenditure, meaning you have £10k each excess income.

I'm sure the exciting HMRC manual defines it somewhere