IHT403 Form Gifts from Excess Income

OldDarrener

Hiya

The answers so far on this topic have been really useful, so thanks to everyone.

When the pensions get included in values of estates,  my wife and I will suddenly need to get involved in inheritance, our house value is relatively low ( <190k) , and my pension pot very high). At the moment, even though we are both retired ,my pension pot is growing quicker than we need to withdraw, Im looking to increase our gifting my daughters by increasing withdrawals but to keep income with 20% income tax bands.

We have given gifts to our 2 daughters above the thresholds in the past and need to review our liabilities. My wife and I completely share, spends and incomes. The upshot of which is if you look in isolation her excess income in often greater than mine, even her income is less than 10k and mine around 36k. Our expediture is around 32k, with about only 2k in her name. 
Leaving as it is ( ie normal for us ) i'm sure will bring questions from HMRC "Why has my wife only  has household expenditure?" Spliting expenditure 50/50 means gifts she has made is at risk, or is it reasonable pro-rata expenditure based on income values?

Other questions
Also filling the last table of the form, in showing the excess income is greater than gifts. Is the value of the gifts after the allowances or before? Ie if  I gift 4k each year ( a LISA donation), most years I can take 3k off as the allowance, do I show 4k or 1k. If it is the latter, most years I show 1k, if out of expection I make an additional 3k, so I have to show 4k will that apparent change in pattern be questioned?

Any Gifts made from Joint accounts, can that be allocated to either party or does it have to be split 50/50?

When wedding gifts are made , often bills/deposits are spread over a number of months, is it ok to split the allowances over 2 financal years?

Are gifts to me included as income?

I assume abnormal one off expeditures are excluded from regular expediture eg capital purchases, ie car, new big stuff furniture, new windows. Decorating and clothes for example would be regular expediture, although if its a fur coat I suppose that would be capital, as it would be included in the value of the estate. ( not that we have any furs)

Gifts out of Income, cannot be funded by capital, but can other gifts within allowances, I guess they can, as a retired Father paying for a Daughters wedding from income that year could be push.

The HMRC notes include the phrase "Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax."  what does that actually mean? Earlier internet versions had this statement outside the small gifts heading. I can't see it in legislation, has is come from some legal precedent? Does it mean gifts from income don't have to be regular if made at xmas or on birthdays?


 

Keep_pedalling

Have you thought about reducing your IHT liability by spending some on yourselves.

The thing that stands out for me here is the low value of your home. Upgrading to one worth £350k or more will take advantage of your two RNRBs potentially cutting £64k off any IHT bill.

OldDarrener

Keep_pedalling said:

Have you thought about reducing your IHT liability by spending some on yourselves.

The thing that stands out for me here is the low value of your home. Upgrading to one worth £350k or more will take advantage of your two RNRBs potentially cutting £64k off any IHT bill.

Thank you Interesting thoughts, spend on ourselves (but not children) or move house or give to the government. 

If we spend the drawdown on ourselves, will take our income into 40% band so the government potentially gets it anyway. Move to a more expensive house, or improve the existing, but is this 'normal' expenditure or capital investement? 

Keep_pedalling

OldDarrener said:

Keep_pedalling said:

Have you thought about reducing your IHT liability by spending some on yourselves.

The thing that stands out for me here is the low value of your home. Upgrading to one worth £350k or more will take advantage of your two RNRBs potentially cutting £64k off any IHT bill.

Thank you Interesting thoughts, spend on ourselves (but not children) or move house or give to the government. 

If we spend the drawdown on ourselves, will take our income into 40% band so the government potentially gets it anyway. Move to a more expensive house, or improve the existing, but is this 'normal' expenditure or capital investement? 

Making improvement to the existing house is unlikely to increase its value to £350k, but which ever you did would be capital expenditure. 

Could you do that from savings outside your pension? 

OldDarrener

Yes using savings outside pension is a possibility, I suppose the estate ineffect gets a 40% discount for every pound spent, providing every pound spent results in a pound increase in house value, it will help up to £350K. Just seems counter-intuitive that in order to save IHT Bill, spending more might be one option. How odd.

There is so much new housing going on locally, getting trades people to give a reasonable quote is very hard at the moment. We are getting silly quotes which wouldn't add the required value to the house.

Moving would have to be local, due to family commitments ( that might change I suppose), I'm not sure if we want all that upheaval at the moment. Worth another look I suppose.

So on balance we just want to maximise gifting within the rules, whilst still looking for value for money house improvements, hence my specific questions.

We did consider moving closer to daughters, but to be honest to get a house like we currently have near them is prohibitive.

Veteransaver

Can you not just increase your drawdown, (stay below the 40% tax bracket) and treat that as excess income and gift it?

OldDarrener

Veteransaver said:

Can you not just increase your drawdown, (stay below the 40% tax bracket) and treat that as excess income and gift it?

Yes in effect that's exactly what I intend to do, maybe i'm over thinking the issue. I'm just trying to understand  the evidence I need to leave for the family to fill the IHT403 form.