Will this approach to gifting out of excess income work?

Madeinireland101

I’ve been going through my income and expenditure for the tax year 2023/24 and have identified just over £20k of excess income. Looking at this year 2024/25 I think I am on course to exceed that.

Bearing in mind that HMRC doesn’t consider excess income to convert to capital for 1-2 years am I able to gift £40k in March this year?

I would write to the recipient and explain that the gift on this occasion is double what would normally be given as it covers two years but that I would expect to be able to gift £20k on a regular basis every March assuming current levels of income and expenditure continue. I’m assuming this double gift is ok for the first gift and every March is considered regular.

Also if any of these gifts fail to be accepted as correct by HMRC would they then simply revert to being potentially exempt transfers with the normal 7 year rule?

Thanks.

Jeremy535897

If you would wish to make the gift anyway, there is no harm in doing it. The worst that can happen is that it becomes a failed PET. HMRC manuals are a good place to read up on the subject:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14243

tacpot12

I think I would gift the £40K as two seperate payments of £20K. That way one of they is the first of the series of regular payments, and the other is a PET. If you ddidn't give away anything the previous year, you have two years of the £3000 annual exemption for gifts, so only £14K of the PET would be subject to IHT. 

I assume you have an emergency fund and savings to allow you to replace appliances and do repairs on your home? If not, you shouldn't be giving away so much - you can't claim that doing so won't affect your standard of living.

You might keep some back to pay any potential IHT bill, but if you have savings for other purposes, these can be used to pay any IHT that is due.