What counts as income when talking about gifts from excess income?

joseph80

I know work pensions and state pension income would count towards your 'income' for the purposes of calculating excess income, but would income from benefits count too?

Benefits such as Pension Credit and Attendance Allowance?

Keep_pedalling

PC would be but not AA, although I doubt that anyone on PC would have much in the way of excess income, and few claiming PC would have estates in IHT territory . 

joseph80

Keep_pedalling said:

PC would be but not AA, although I doubt that anyone on PC would have much in the way of excess income, and few claiming PC would have estates in IHT territory . 

Thank you - that is extremely helpful to know. Also good point about the PC. 

Thank you also for the advice you gave on a separate post I made recently about my separated but not divorced parents and making use of the combined NRB and RNRB. 

mybestattempt

Keep_pedalling said:

PC would be but not AA, although I doubt that anyone on PC would have much in the way of excess income, and few claiming PC would have estates in IHT territory . 

I'm not sure why you think AA isn't income.

I appreciate it isn't a means tested or taxable benefit but it is income nevertheless.

Keep_pedalling

mybestattempt said:

Keep_pedalling said:

PC would be but not AA, although I doubt that anyone on PC would have much in the way of excess income, and few claiming PC would have estates in IHT territory . 

I'm not sure why you think AA isn't income.

I appreciate it isn't a means tested or taxable benefit but it is income nevertheless.

It is not considered as income for tax purposes, so can’t be used to claim a tax exemption. 

probate_slave

I was told by an HMRC technical officer in 2011 to include non-taxable income such as AA, winter fuel payment, Christmas bonus, interest on ISAs and National Savings certificates, and premium bond winnings in IHT403.

IHTM14250 mentions that

"Income is not defined in the IHTA84 but should be determined for each year in accordance with normal accountancy rules. It is not necessarily the same as income for income tax purposes."

I feel it makes sense to allow AA as income since the benefit is given specifically to offset expenditure which will also be included.

joseph80

Mmm. I’m a bit unsure now as I’m receiving conflicting information. The IFA I asked has said AA is included but it seems to be slightly open to interpretation.

What’s the chances of me getting a definitive answer from HMRC in writing to prevent issues further down the line?

mybestattempt

joseph80 said:

Mmm. I’m a bit unsure now as I’m receiving conflicting information. The IFA I asked has said AA is included but it seems to be slightly open to interpretation.

What’s the chances of me getting a definitive answer from HMRC in writing to prevent issues further down the line?

In my view, it isn't open any interpretation other than the gifts can be from any source of 'excess income'.

The relevant legislation at S21 IHTA 1984 does not restrict the income from which the gift is made to 'taxable income' and the HMRC guidance in the Inheritance Tax Manual, which @probate_slave referred to, confirms this along with the advice he was given by HMRC.

https://www.legislation.gov.uk/ukpga/1984/51/section/21

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250

The definitive answer is written in the guidance but you may wish to confirm with HMRC.

joseph80

Thank you all.

Slightly different question. I am familiarising myself with the IHT403 form and devising a spreadsheet to start analysing income and expenditure over the last year in preparation for gifts from excess income to start being made. 

Should non-exempt gifts (such as birthday gifts of £400, etc) be included on page 8 as they are regular (annual) gifts? Or would that cause it to be double counted as such gifts would be itemised on pages 3-4 too?

probate_slave

You list all gifts on pages 3-4, whether exempt or not (except those HMRC ask you not to tell them about, of course). All those for which you claim the NEOOI exemption are then also given at the bottom of page 8. The duplicational is intentional, but there's no double counting as totals are only made on the earlier pages.

joseph80

probate_slave said:

You list all gifts on pages 3-4, whether exempt or not (except those HMRC ask you not to tell them about, of course). All those for which you claim the NEOOI exemption are then also given at the bottom of page 8. The duplicational is intentional, but there's no double counting as totals are only made on the earlier pages.

Thank you. I'm probably confusing myself, but I think what I mean is - when calculating what your excess income is (and therefore including your 'normal expenditure' in the calculations) would non-exempt gifts (such as those you usually give for birthdays) be included? 

Some completely made up figures to try to explain my ramblings...

Total Annual Income = £24,000
Total Expenditure (Household Bills, Travelling Costs, Other, etc) = £12,000
Surplus Income for the year = £12,000
Gifts Made = £13,000

BUT, say the gifts are made up of £12,000 (Gifts from Excess Income) PLUS £1,000 (from 2 birthday presents of £500 each which you do every year) 

Also, would you say before starting to make gifts from excess income, it would best to analyse income and expenditure just for the previous year (and then obviously continue to do so from now on) or would you be strongly advised to go back further before even starting?

Finally, is there any good guidance anywhere about the correct categories that certain expenditure should fall under (such as I presume meals out are 'Entertainment' and food shopping is 'Household Bills', but what about going to the Hairdresser for example)?

Thank you again for your (and everyone's) help.