Pension income and annual £3,000 gift allowance

PowerSavingMode

Secret2ndAccount said:

You cannot avoid income tax by giving the money away (well, possibly by giving it to charity, but not to you).

Thought it was too good to be true! Thanks.

Secret2ndAccount said:

Has SO already taken the 25% tax free lump sum from her pension?

Yes, but it seems not fully? An 'income payment' of £2,500 was taken in May 2024 from the drawdown pot, which was fully taxed. Then a one-off sum of £11,000 was withdrawn a few months later (UFPLS) — including a tax-free amount of £2,750.

Secret2ndAccount said:

Person A gifting money to Person B never generates a tax bill and never avoids a tax bill. An inheritance tax bill could arise if Person A dies within 7 years.

And Person B doesn't need to declare that as income, as it's technically a gift? 

Sarahspangles

PowerSavingMode said:

Secret2ndAccount said:

You cannot avoid income tax by giving the money away (well, possibly by giving it to charity, but not to you).

Thought it was too good to be true! Thanks.

Secret2ndAccount said:

Has SO already taken the 25% tax free lump sum from her pension?

Yes, but it seems not fully? An 'income payment' of £2,500 was taken in May 2024 from the drawdown pot, which was fully taxed. Then a one-off sum of £11,000 was withdrawn a few months later (UFPLS) — including a tax-free amount of £2,750.

Secret2ndAccount said:

Person A gifting money to Person B never generates a tax bill and never avoids a tax bill. An inheritance tax bill could arise if Person A dies within 7 years.

And Person B doesn't need to declare that as income, as it's technically a gift? 

If gifts had to be declared as income, there’d be a lot of form filling going on! I can gift money to whoever I like, the only reason it’s ever going to be of interest to the taxman is if I die, and have enough wealth at that point for my estate to need to pay inheritance tax.

Having dealt with estates what this means in practice is that - ideally - as an executor you have some records that the deceased kept that say things like “Bob’s graduation gift £1,000”, “Bob’s wedding £500”, “Bob’s baby shower £500” “Baby’s Christening Gift £1,000” so that there is a justification for not having to count the gifts as if they are still part of the value of the deceased’s estate. The limit is currently £3,000 a year and I think a wedding gift is extra.

There are some special rules for ‘gifts out of income’ but you need to know you’re into inheritance tax territory to bother working out how to use these.

Yorkie1

Just picking up on the marriage (or civil partnership) points above, if you decided to go down this route then it will invalidate any wills. Unless you had recently made wills in anticipation of the marriage / partnership, you'd need to redo them after the event.

PowerSavingMode

Yorkie1 said:

Just picking up on the marriage (or civil partnership) points above, if you decided to go down this route then it will invalidate any wills. Unless you had recently made wills in anticipation of the marriage / partnership, you'd need to redo them after the event.

One of the reasons we didn't say "I do"! We're setting up power of attorneys (POAs), too, so another factor...