Regular gifts from excess income and IHT

MarzipanCrumble

Today in The Sunday Times is a useful article about making regular gifts out of excess income which won't incur the 7 year rule.
https://www.thetimes.com/business-money/money/article/gifts-inheritance-tax-advice-experts-tips-8nxxhjjmd

Basically, which I did not realise and now do, if you have a one off unusual expenditure i.e. replacement car, roof repair, replacement boiler - this would be seen as out of savings as long as not financed by credit arrangement, not income.  I am in the fortunate position that I just pay for something that costs <£3k out of normal account.

It also says that if you make regular equitable gifts for birthday/Christmas out of excess income then this may count as a regular gift out of excess income.

Yes, bit of a minefield - and the key is good documentation and also a letter to recipient detailing what gifting you are making and that it is out of your regular income.

Just thought this was an interesting article, especially as HMRC guidance is really opaque.

Keep_pedalling

Unfortunately the article is behind a paywall so can’t comment how useful it is, but often things printed in newspapers are lacking or inaccurate in some way so should be treated with caution. 

“I am in the fortunate position that I just pay for something that costs <£3k out of normal account” 

Not sure what you mean by that statement, could you clarify? 

phlebas192

MarzipanCrumble said:
Basically, which I did not realise and now do, if you have a one off unusual expenditure i.e. replacement car, roof repair, replacement boiler - this would be seen as out of savings as long as not financed by credit arrangement, not income.

Can't access the article, but this feels wrong. These are all standard payments that we should expect to meet and pay for out of income. Valid capital expenditure is the sort of thing that permanently increases another asset. eg an extension to your house permanently increases its value but a new kitchen does not. Cars and boilers have limited lifespans and will need replacing so should be considered normal expenditure. Even a new roof is properly considered maintenance - if it had been adequately maintained then it is unlikely that it would need replacing.

silvercar

phlebas192 said:

MarzipanCrumble said:
Basically, which I did not realise and now do, if you have a one off unusual expenditure i.e. replacement car, roof repair, replacement boiler - this would be seen as out of savings as long as not financed by credit arrangement, not income.

Can't access the article, but this feels wrong. These are all standard payments that we should expect to meet and pay for out of income. Valid capital expenditure is the sort of thing that permanently increases another asset. eg an extension to your house permanently increases its value but a new kitchen does not. Cars and boilers have limited lifespans and will need replacing so should be considered normal expenditure. Even a new roof is properly considered maintenance - if it had been adequately maintained then it is unlikely that it would need replacing.

I disagree, many people can’t afford to replace their car/ boiler/ roof from regular income and so resort to using their savings. Hanse the expression ‘rainy day savings’. Budgeting for future expenditure through funding pots also a way of saving for certain big buck items.

Swiss_Danny67

Thanks for the link. It is clearly a subjective and gray topic. What is regular income?  Ok yes pension annuities, rents, dividend income, but what about unrealized capital gains from your portfolio?  Conversely regular expense are utility bills, food, insurance etc, but what about a big or holiday, new car, home improvement you wouldnt do if you didnt have the capital.

Linton

Swiss_Danny67 said:

Thanks for the link. It is clearly a subjective and gray topic. What is regular income?  Ok yes pension annuities, rents, dividend income, but what about unrealized capital gains from your portfolio?  Conversely regular expense are utility bills, food, insurance etc, but what about a big or holiday, new car, home improvement you wouldnt do if you didnt have the capital.

Capital gains are increases in capital, ie savings. Dividends and interest are income. Just apply reasonable common sense. If there is doubt I suggest you or more importantly your executor err on the side of caution as regards claiming gifts from income. If HMRC find something dodgy they may be inclined to look more deeply elsewhere.

Sea_Shell

MarzipanCrumble said:

Today in The Sunday Times is a useful article about making regular gifts out of excess income which won't incur the 7 year rule.
https://www.thetimes.com/business-money/money/article/gifts-inheritance-tax-advice-experts-tips-8nxxhjjmd

Basically, which I did not realise and now do, if you have a one off unusual expenditure i.e. replacement car, roof repair, replacement boiler - this would be seen as out of savings as long as not financed by credit arrangement, not income.  I am in the fortunate position that I just pay for something that costs <£3k out of normal account.

It also says that if you make regular equitable gifts for birthday/Christmas out of excess income then this may count as a regular gift out of excess income.

Yes, bit of a minefield - and the key is good documentation and also a letter to recipient detailing what gifting you are making and that it is out of your regular income.

Just thought this was an interesting article, especially as HMRC guidance is really opaque.

I read this as meaning a 'New Car', paid for out of savings is not deemed to be from "income".

But, finance for said 'new car' would be paid monthly and would be treated as being paid from "income" NOT savings (even if you moved money monthly from savings to current account to cover it.)

So as long as you have sufficient SAVINGS to pay for large one off purchases, without using finance or income, then they are not treated as being from income, therefore leaving any EXCESS income available to GIFT.

Have I understood that correctly?    (have not read article)

Keep_pedalling

Is buying a new car a one off purchase if you renew your care on a regular basis, say every 3 years? 

Sea_Shell

Keep_pedalling said:

Is buying a new car a one off purchase if you renew your care on a regular basis, say every 3 years? 

Aren't most frequent renewals done via finance arrangements these days.  PCP etc.

Do many people pay cash every 3 years?

I would have thought cash buyers would be more "buy and keep" sorts.  I know we are 😉

Keep_pedalling

Sea_Shell said:

Keep_pedalling said:

Is buying a new car a one off purchase if you renew your care on a regular basis, say every 3 years? 

Aren't most frequent renewals done via finance arrangements these days.  PCP etc.

Do many people pay cash every 3 years?

I would have thought cash buyers would be more "buy and keep" sorts.  I know we are 😉

People in IHT territory might very well purchase. I have done so with all my new cars. 

Sea_Shell

Keep_pedalling said:

Sea_Shell said:

Keep_pedalling said:

Is buying a new car a one off purchase if you renew your care on a regular basis, say every 3 years? 

Aren't most frequent renewals done via finance arrangements these days.  PCP etc.

Do many people pay cash every 3 years?

I would have thought cash buyers would be more "buy and keep" sorts.  I know we are 😉

People in IHT territory might very well purchase. I have done so with all my new cars. 

Out of savings or income 😉