Clever gifting out of excess income or not?

fuzzzzy

Madeinireland101 said:

If…
1. I have £200k and I loan it to my kids over a five year period - £20k per year each and there are two kids.

2. They earn £10k per year by putting it in ISA’s by the end of 5 years.
3. I can at any time get the money back if I need it for any reason.
 

Although I haven’t gifted the money and it’s still in my estate I am now in the position where they are earning £10k per year out of my excess income with little  risk to me running out of money and not having to go through all the effort of recording income and expenditure.

Thoughts please?

How are they going to earn 10k a year?

Madeinireland101

fuzzzzy said:

Madeinireland101 said:

If…
1. I have £200k and I loan it to my kids over a five year period - £20k per year each and there are two kids.

2. They earn £10k per year by putting it in ISA’s by the end of 5 years.
3. I can at any time get the money back if I need it for any reason.
 

Although I haven’t gifted the money and it’s still in my estate I am now in the position where they are earning £10k per year out of my excess income with little  risk to me running out of money and not having to go through all the effort of recording income and expenditure.

Thoughts please?

How are they going to earn 10k a year?

It’s just an approximation but £200k at 5% in an ISA gives you £10k per year. Trading212 currently pays 4.9% but was 5.17% just a couple of weeks ago.

fuzzzzy

Madeinireland101 said:

fuzzzzy said:

Madeinireland101 said:

If…
1. I have £200k and I loan it to my kids over a five year period - £20k per year each and there are two kids.

2. They earn £10k per year by putting it in ISA’s by the end of 5 years.
3. I can at any time get the money back if I need it for any reason.
 

Although I haven’t gifted the money and it’s still in my estate I am now in the position where they are earning £10k per year out of my excess income with little  risk to me running out of money and not having to go through all the effort of recording income and expenditure.

Thoughts please?

How are they going to earn 10k a year?

It’s just an approximation but £200k at 5% in an ISA gives you £10k per year. Trading212 currently pays 4.9% but was 5.17% just a couple of weeks ago.

A bit optimistic to think ISA interest rates will remain at around 5% forever and even if they did, which is very doubtful, each child would not earn the full £5k each year until after a full 5 years. 

I know the gifts from income admin seems like a pain, but would it not be better to give small gifts from income each year that they could grow in a S&S ISA.

Unless the main motivation for a loan type of arrangement is the fear of gifting too much and running out of money yourself?

I know myself this gifting business is a tricky business, so was quite interested in your idea.

I am frugal by nature and know I probably have more money than I need so was thinking the best way to start gifting, whether to do one big lump sum now or start regular annual smaller gifts from income. But then how much to gift, and then the doubts start to set in about whether I really do have enough for myself. The main motivation being of course to avoid a 40% IHT charge on some of my savings. But what if my child in the future ends up in a divorce situation and all my gifts get subjected effectively to a 50% charge.

First world problems I know, but it is a pain having to think about all this stuff. I do think IHT thresholds are set too low. The purpose of IHT was not originally to capture people like us.

Madeinireland101

fuzzzzy said:

Madeinireland101 said:

fuzzzzy said:

Madeinireland101 said:

If…
1. I have £200k and I loan it to my kids over a five year period - £20k per year each and there are two kids.

2. They earn £10k per year by putting it in ISA’s by the end of 5 years.
3. I can at any time get the money back if I need it for any reason.
 

Although I haven’t gifted the money and it’s still in my estate I am now in the position where they are earning £10k per year out of my excess income with little  risk to me running out of money and not having to go through all the effort of recording income and expenditure.

Thoughts please?

How are they going to earn 10k a year?

It’s just an approximation but £200k at 5% in an ISA gives you £10k per year. Trading212 currently pays 4.9% but was 5.17% just a couple of weeks ago.

A bit optimistic to think ISA interest rates will remain at around 5% forever and even if they did, which is very doubtful, each child would not earn the full £5k each year until after a full 5 years. 

I know the gifts from income admin seems like a pain, but would it not be better to give small gifts from income each year that they could grow in a S&S ISA.

Unless the main motivation for a loan type of arrangement is the fear of gifting too much and running out of money yourself?

I know myself this gifting business is a tricky business, so was quite interested in your idea.

I am frugal by nature and know I probably have more money than I need so was thinking the best way to start gifting, whether to do one big lump sum now or start regular annual smaller gifts from income. But then how much to gift, and then the doubts start to set in about whether I really do have enough for myself. The main motivation being of course to avoid a 40% IHT charge on some of my savings. But what if my child in the future ends up in a divorce situation and all my gifts get subjected effectively to a 50% charge.

First world problems I know, but it is a pain having to think about all this stuff. I do think IHT thresholds are set too low. The purpose of IHT was not originally to capture people like us.

You are right it may not earn the full £10k but equally if I didn’t loan it I’d face the same difficulty. I only gave ISA’s as an example - a safe one at least. I fully recognise your worry and yes I am not yet certain that we as a couple can afford to gift it all - especially if I go first as the owner of a substantial DB pension. As soon as I feel more confident - I will be make the funds gifts.

fuzzzzy

[Deleted User] said:

fuzzzzy said:

The purpose of IHT was not originally to capture people like us.

I don't know who "like us" is but the nil rate band in 1986 was not transferrable, there was no residential nil rate band and, adjusted for a guess of inflation, is much lower than the current £325k.  Roughly £207,000 per person in today's money Vs a typical £500,000 per person / £1m per couple.

That's interesting. I had actually just come back to edit that last bit of my post out before anyone replied in case it was considered straying into political debate but I was too late. I should of done a bit of research before sounding off! Possibly by the 'like us' I meant people who are largely in IHT territory from living far too frugal a life. That certainly describes me though I can't really speak for the OP. Still time to try and change I suppose.
 

fuzzzzy

[Deleted User] said:

fuzzzzy said:

But what if my child in the future ends up in a divorce situation and all my gifts get subjected effectively to a 50% charge.

May be suggest that they don't get married?

I would never dream of that. I'll just have to let go of my own worries about that.

I guess the point I was trying to make is there is a lot to think about with this gifting business, and I can see maybe why some people are trying to come up with more creative ideas to avoid IHT.