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

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  • fuzzzzy
    fuzzzzy Posts: 151 Forumite
    Fifth Anniversary 100 Posts Name Dropper
    joseph80 said:
    Sorry - coming back to this again!...

    Just to double check - any large one-off gifts (such as £10k) would go on page 3-4 and subject to the usual IHT rules, but obviously not on page 8 as NEOOI exemption would not be applied to it. However, would the £10k 'expenditure' need to be included under 'Other' on Q21 on page 8? Because if that was included, it makes quite a difference to the Surplus income for the year Q22.

    No because the 10k gift does not affect surplus income as it is made from capital not income.
  • joseph80
    joseph80 Posts: 67 Forumite
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    fuzzzzy said:
    No because the 10k gift does not affect surplus income as it is made from capital not income.
    Thank you. I thought so, but wanted to be absolutely sure. 
  • joseph80
    joseph80 Posts: 67 Forumite
    10 Posts Photogenic Name Dropper
    joseph80 said:
    Also, with the question of my mother starting to make regular payments out of income to myself and my brother, we're trying to help her to calculate an amount that would allow her to comfortably retain the same standard of living. So lets say she usually gifts a total of £4,000 for birthdays, Xmas, etc (ignoring the small gift exemption as each gift tends to be over £250 anyway).

    If £3,000 of that could be exempt under the annual exemption rules, then we would only need to claim NEOOI exemption on £1,000 of it. Therefore allowing scope for higher value monthly payments to be made. 

    So would it be better to list it that way round? Or am I barking up the wrong tree?
    Does anyone have any thoughts on this question above please? 

    Just to check, would the small gifts (not being claimed under NEOOI exemption) need to be listed on page 8 under ‘gifts made’? 

    The method behind my madness is I’m thinking that it may be better to reduce the total of small gifts made to £3,000 and increasing the regular monthly payments (under NEOOI exemption) accordingly as there’d be more excess income available. 

    But I think it depends on the answer to my question above. 

    Thank you all. 
  • fuzzzzy
    fuzzzzy Posts: 151 Forumite
    Fifth Anniversary 100 Posts Name Dropper
    If you are not going to use the £3k allowance to reduce any larger gift from capital then it makes sense to use it up on some of  the smaller gifts.  In that case only the excess of the smaller regular gifts above £3k would need to go on page 8.
  • probate_slave
    probate_slave Posts: 64 Forumite
    10 Posts Name Dropper

    I'll try and answer some of these questions if it would help.

    Starting with the easy one, the bottom line of page 8 is solely for normal gifts claimed under the exemption. I agree it's not 100% obvious, and I checked with HMRC in 2011, but the phrase "Gifts made" is intended to match the title of the page "Gifts made as part of..."

    A single £10,000 gift wouldn't be excluded just for being made out capital (after all, surplus income would cover it in your case), but because one-off gifts don't fall within a pattern, as you say.

    But then you ask about including £10,000 expenditure in Other?! Where is this figure on your 24/25 list? Are you double counting or referring to the £1,200 house repair? Personally I don't see how a £1,200 repair in the year can possibly be excluded. Surely it's essential to fix a roof leak, say, to maintain your mother's standard of living? It simply returns the roof to its original condition. (This brings us close to the equally vague guidance at PIM2030 around repair/improvement.)

    But now to the meat of your question, which I do understand. You are of course entitled to allocate the exemptions however you like. You will gain a small advantage, perhaps the net estate after IHT will be 1% larger than it would have been without your sleight of hand! You will lose the simplicity of rolling up regular gifts into a single exemption. You intentionally run close to the limit. It's a very different rationale from the two estates where I (successfully, as far as I know) applied NEOOI.

    Finally, consider that our entire discussion would be futile if you took Kp's advice in your previous thread that your mother rewite her will to take far greater advantage of the exemptions available.

  • joseph80
    joseph80 Posts: 67 Forumite
    10 Posts Photogenic Name Dropper
    edited 4 May at 11:14PM
    fuzzzzy said:
    If you are not going to use the £3k allowance to reduce any larger gift from capital then it makes sense to use it up on some of  the smaller gifts.  In that case only the excess of the smaller regular gifts above £3k would need to go on page 8.
    Thank you.

    probate_slave said:

    Starting with the easy one, the bottom line of page 8 is solely for normal gifts claimed under the exemption. I agree it's not 100% obvious, and I checked with HMRC in 2011, but the phrase "Gifts made" is intended to match the title of the page "Gifts made as part of..."

    A single £10,000 gift wouldn't be excluded just for being made out capital (after all, surplus income would cover it in your case), but because one-off gifts don't fall within a pattern, as you say.


    Got it. Thank you for confirming.

    But then you ask about including £10,000 expenditure in Other?! Where is this figure on your 24/25 list? Are you double counting or referring to the £1,200 house repair? Personally I don't see how a £1,200 repair in the year can possibly be excluded. Surely it's essential to fix a roof leak, say, to maintain your mother's standard of living? It simply returns the roof to its original condition. (This brings us close to the equally vague guidance at PIM2030 around repair/improvement.)


    Sorry for confusing things. The £10,000 was a hypothetical future one-off gift. Which as I understand it would not be included on page 8 under either 'Gifts made' (as you confirmed above) OR included within the expenditure breakdown on page 8, BUT would be included on Page 3-4.

    I have re-categorised on the original schedule so the house repair is under household bills so is now counted within the expenditure figures. 

    But now to the meat of your question, which I do understand. You are of course entitled to allocate the exemptions however you like. You will gain a small advantage, perhaps the net estate after IHT will be 1% larger than it would have been without your sleight of hand! You will lose the simplicity of rolling up regular gifts into a single exemption. You intentionally run close to the limit. It's a very different rationale from the two estates where I (successfully, as far as I know) applied NEOOI.


    Thank you - I will give this some further thought.

    Finally, consider that our entire discussion would be futile if you took Kp's advice in your previous thread that your mother rewite her will to take far greater advantage of the exemptions available.

    I have already sought advice from an IFA (on KP's advice) who has referred the query to a will writer. So yes, this may all be futile in the end, but at least I would have learnt a thing or two which has been interesting. 
  • joseph80
    joseph80 Posts: 67 Forumite
    10 Posts Photogenic Name Dropper
    edited 4 May at 11:30PM
    Whilst thinking outside the box (and this slightly overlaps with my previous thread regarding my very amicably separated but not divorced parents)...

    If my mother was to sell her property (to downsize) and gave the balance from the sale to my father, could he then gift the money which would then be from his estate rather then hers without any IHT implications (his own property is only worth about £250k and he has nominal savings). 

    This idea sounds a bit irregular, but I wonder whether it is? Or am I missing something obvious? I understand it's a slightly unique scenario. 
  • mybestattempt
    mybestattempt Posts: 478 Forumite
    100 Posts First Anniversary Name Dropper
    joseph80 said:
    Whilst thinking outside the box (and this slightly overlaps with my previous thread regarding my very amicably separated but not divorced parents)...

    If my mother was to sell her property (to downsize) and gave the balance from the sale to my father, could he then gift the money which would then be from his estate rather then hers without any IHT implications (his own property is only worth about £250k and he has nominal savings). 

    This idea sounds a bit irregular, but I wonder whether it is? Or am I missing something obvious? I understand it's a slightly unique scenario. 

    I've just read your previous thread where you say your parents are very elderly.

    You may feel I'm being intrusive and my thoughts unnecessary, but I feel there may be more than just IHT to consider over the coming years.

    Something that hasn't been explored is whether LPAs for each parent are in place (and if operative yet), their health, capacity and current and possible future care needs.

    Forgive me if you have already thought the impact of those through, but they are all factors which may possibly come into play around whether any financial decisions made on their behalf now or in the future are in their respective best interests and whether the question of deliberate deprivation of assets could become an issue further down the line.


  • joseph80
    joseph80 Posts: 67 Forumite
    10 Posts Photogenic Name Dropper
    edited 5 May at 1:46PM
    I've just read your previous thread where you say your parents are very elderly.

    You may feel I'm being intrusive and my thoughts unnecessary, but I feel there may be more than just IHT to consider over the coming years.

    Something that hasn't been explored is whether LPAs for each parent are in place (and if operative yet), their health, capacity and current and possible future care needs.

    Forgive me if you have already thought the impact of those through, but they are all factors which may possibly come into play around whether any financial decisions made on their behalf now or in the future are in their respective best interests and whether the question of deliberate deprivation of assets could become an issue further down the line.


    Thank you and I don’t think you’re being intrusive at all. 

    LPAs are in place for both. The LPAs have been registered with their banks as I help them with their banking sometimes. 

    Regarding capacity, one has mild cognitive impairment and the other vascular dementia (early stages). 

    I haven’t read up too much on what could be deemed as deliberate deprivation of assets. For both we presume if it ever came to needing to move into a care home, their properties would have to be sold to finance it. I haven’t thought too much beyond that. 

    At present, any financial decisions are being made by them with me advising them on options (although I realise there is obviously a conflict of interest). 

    Do your comments mean that you feel the idea of passing money between spouses and then the one with the smaller estate gifting it to their children, is potentially a bad idea? 
  • joseph80
    joseph80 Posts: 67 Forumite
    10 Posts Photogenic Name Dropper
    edited 5 May at 4:07PM
    fuzzzzy said:
    When I originally read your thread I failed to properly take in the bit about separated but not divorced parents. 

    Having read your other thread surely the most important thing is to get proper advice to make sure both NRBs and RNRBs are transferable and the best way to utilise these. Then you don't need to concern yourself about all the ins and outs of the gifting marlarkey?

    [POST NOW DELETED]
    Thank you - yes I think I'll continue keeping records for now (just in case), but not suggest to my mother that any regular or one-off additional gifts are made until we have a concrete answer from the IFA and will writer about the best way of utilising the NRBs and RNRBs.  

    It would definitely be good not have have to worry about the ins and outs of the gifting malarkey! :-) 
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