Income, Expenditure and Gifting from Excess Income

MK62

I can see this all getting very messy in some cases. Keeping detailed records is helpful, but only if HMRC agrees that their three conditions for gifting from excess income have been met. It will be particularly interesting, as mentioned earlier, to see exactly how HMRC are going to view drawdown in terms of what is income and what is withdrawal of capital, especially in view of the third condition......
"that, after allowing for all gifts forming part of their normal expenditure, the transferor must have been left with enough income to maintain their usual standard of living.....Gifts, even if made out of income, will not qualify for exemption if the transferor had to resort to capital to meet their normal living expenses,"
.......and over what period this refers to.

pysifr

I see many responses to the effect that "gifts out of income"  can only be made out of personal income, but as sea_shell says, gifts IN count as income. Also, my accountant tells me, "There is no IHT implications on gifts between spouses or civil partners as long as you are legally married and live in the United Kingdom permanently. Money in joint accounts is not apportioned according to who paid in the money. The "ownership" of the money changed the second you paid it into the joint account. it is not even 50:50, but both of you have access to 100% of the money." Thus although one partner may have much less income than the other, when the higher earning partner pays it into a joint account, it is essentially a monetary gift to the other partner. But does it really matter, as the higher earner can opt to make more gifts out of income than the lower earner. Overall, the total gifts will be the same amount?

pysifr

LHW99 said:

I had a look at IHT403, as the 2027 rules are likely to require this (or similar) to be filled in.

Horror! - the required categories are completely different to those I have been using for the past x years to classify / group expenditure.

I shall try to re-classify expenditure from now, and in at least the last couple of financial years, and hope to last long enough that any executors will have the information they need at some (hopefully long) time in the future.

Please can you post a link to this new IHT403 form with changed categories, The latest update to this form that I have found was 2020, and, of course, that has no mention of pensions,  As far as I can tell, it does not have any changes to the categories of expenditure in relation to gifts out of income.  

LHW99

May 2020 is the date of the form I downloaded in 2024.

I don't know that HMRC have changed the categories, only that I had to change my recording format, as I had previously used fewer categories in my income spreadsheets.

It seemed easier to change my spreadsheets now (while still around and not ga-ga) rather than leaving my heirs to wade through many years of data to try and work things out.