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

fuzzzzy

joseph80 said:

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?

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! :-) 

Sorry I just deleted that comment whilst you must have been replying to it as I noticed a few comments earlier that you said you were getting proper advice and realised all the gifting questions may be futile.

As I said in my edited post, which I then deleted, it could still be worth considering utilising the gifts from income from now on though just in case there is a chance the estates could exceed the 1 million in the future.

joseph80

probate_slave said:

However, I am puzzled that you use regular £500 birthday presents as examples of non-exempt gifts, since they are the very of kind of gift for which the NEOOI exemption is designed.

I know all my questions may be irrelevant depending on the outcome of my discussions with my IFA regarding my mum potentially changing her will and utilising the NRBs and RNRBs.

However, regardless of that I am continuing to record her gifts to family which will one day be claimed under NEOOI exemption. I just want to be absolutely sure that regular birthday, Christmas and anniversary gifts (made to the same donee at the same regular intervals for roughly the same amounts) can be included under NEOOI.

The only reason I ask is that in the HRMC guidance, it gives the example of gifts paid under NEOOI exemption being for things such as school fees or living expenses. Is the reason for the gift completely irrelevant?

Also, just to double check - on page 8 of the IHT403, should income from Pensions be stated net or gross?

Thank you.

probate_slave

Yes, I think the reason for the gift is irrelevant. Once a gifting pattern has been established out of income, the gift is automatically exempt.

Christmas and birthday gifts are explicitly mentioned in the IHT400 Notes, p.77 of the latest Apr 2025 edition. Of course, back in 1980, the £250 small gift exemption would have entirely covered these (current adjusted value close to £1,400). Now it's virtually useless. My point was that NEOOI is the only exemption available to relieve your mother's birthday presents after using up the annual exemption, and you say these totalled around £6k last year. If she were to die in, say, 4 years time leaving a chargeable estate, you would have the choice either to pay tax on the surplus or dig up all the income/expenditure figures including two years before 24/25.

HMRC want net figures on income paid net, and gross figures on income paid gross. I noticed you hadn't included tax in your table, and assumed the state pension was received gross, and the private pension received net, with appropriate tax taken through PAYE. If this is the case then your table is fine.

Just to add, earlier you mentioned including a hypothetical £10k one-off gift as expenditure? This is really muddying the water! Gifts and expenditure are mutually exclusive categories in my view.

joseph80

probate_slave said:

Yes, I think the reason for the gift is irrelevant. Once a gifting pattern has been established out of income, the gift is automatically exempt.

Christmas and birthday gifts are explicitly mentioned in the IHT400 Notes, p.77 of the latest Apr 2025 edition. Of course, back in 1980, the £250 small gift exemption would have entirely covered these (current adjusted value close to £1,400). Now it's virtually useless. My point was that NEOOI is the only exemption available to relieve your mother's birthday presents after using up the annual exemption, and you say these totalled around £6k last year. If she were to die in, say, 4 years time leaving a chargeable estate, you would have the choice either to pay tax on the surplus or dig up all the income/expenditure figures including two years before 24/25.

Now you put it like that, yes the £250 small gift exemption is ridiculous in today's money!

I've saved the guidance now - thank you. That absolutely clarifies it. 

I have looked back at historical gifts over the last 7 years and ensured all records are up to date and it looks like we'd be better off using the £3k annual exemption (and carrying it forward in some cases) along with the NEOOI exemptions separately BUT I presume that means going back multiple years to analyse income and expenditure?

This is of course all IF there ends up being a chargeable estate which is unknown at present. 

probate_slave said:

HMRC want net figures on income paid net, and gross figures on income paid gross. I noticed you hadn't included tax in your table, and assumed the state pension was received gross, and the private pension received net, with appropriate tax taken through PAYE. If this is the case then your table is fine.

Perfect - yes that's what I've done. 

probate_slave said:

Just to add, earlier you mentioned including a hypothetical £10k one-off gift as expenditure? This is really muddying the water! Gifts and expenditure are mutually exclusive categories in my view.

Don't worry - I think I've got that straight in my head now. It would come from Capital and not listed on page 8 under 'Expenditure'. Only listed as a gift on pages 3-4. 

Have you (or anyone) got any recommendations on particular guidance or notes to read on the following scenario: Mum sells house to downsize. Moves into new smaller property and needs to buy new furniture, etc. Would those purchases need to be listed under Expenditure on that year's schedule summarised on page 8 pf the IHT403? They money to pay for the purchases would come from the sale of her property and are obviously not 'normal expenditure'. Could HMRC argue that those purchases are to retain her normal standard of living?

probate_slave

joseph80 said:
Have you (or anyone) got any recommendations on particular guidance or notes to read on the following scenario: Mum sells house to downsize. Moves into new smaller property and needs to buy new furniture, etc. Would those purchases need to be listed under Expenditure on that year's schedule summarised on page 8 pf the IHT403? They money to pay for the purchases would come from the sale of her property and are obviously not 'normal expenditure'. Could HMRC argue that those purchases are to retain her normal standard of living?

Surely it's just a capital transfer in which old house + old furniture are replaced by new house + new furniture + some spare capital. Income doesn't come into it so I doubt you'll find anything in a manual.

probate_slave

joseph80 said:
I have looked back at historical gifts over the last 7 years and ensured all records are up to date and it looks like we'd be better off using the £3k annual exemption (and carrying it forward in some cases) along with the NEOOI exemptions separately BUT I presume that means going back multiple years to analyse income and expenditure?

It does, but keep a rolling folder of the past eight years' income & expenditure, including bank and credit card statements, etc. Look through the statements with your mother while she's still sharp to clarify any obscure entries. No need to tabulate anything until you have to. Each year an old file will drop off.