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

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.

joseph80

Coming back to this again. Could you help with this scenario please.

With the NEOOI rules I know that you have to demonstrate that expenditure has come from your current account and not left you short. However, what if you put money from your current account into your savings and then withdraw it from your savings and put it back into your current account to pay for a new boiler at your own house?

dales1

OK I'll kick off, since no-one else seems to be around !

Moving money from your current account into savings is not expenditure for IHT403, because you still possess the money.

Withdrawing from your savings to current account is not income for IHT403, because you have no new incoming money.

I treated the cost of my own new boiler this year as an expense on IHT403, even though the old one was 24 years old.This was not a brand new boiler where there was none before (which would have been an allowable charge to capital). It was an old boiler where I chose to replace rather than repair.

joseph80

https://forums.moneysavingexpert.com/discussion/comment/82164904#Comment_82164904

Thank you - that was not the response I was hoping for, but best to get these things right :-) I have seen some thoughts contradicting this as it is not 'normal expenditure' but I have no idea who is right!!

Do you feel it would make any difference that she moved into the house last summer and then had boiler issues as soon as the winter came. Paid for numerous repairs over the winter and now the cold weather has come again this year it has completely broken down. So a replacement is her only choice. Or am I clutching at straws?!

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82164915#Comment_82164915

if you want clutches to grab -

1. Changing something after 24 years must be capital as it’s not run of the mill repairs and maintenance. Ina. Similar vein to choosing a new kitchen, when the other one would do even if dated,
2. that it was working means there is a choice to upgrade, rather than it being a repair or maintenance.

Keep_pedalling

I am not really sure why she is even using this exemption as, according to a previous thread from last year the joint net worth of your parents is below £1M so, provided your mother did make a new will to take advantage spousal exemptions, this added complication is not really worth the effort as no IHT is payable anyway.

You also mentioned PC previously, and if she is on PC I can’t imaging her excess income being very high.

joseph80

https://forums.moneysavingexpert.com/discussion/comment/82165007#Comment_82165007

Sorry for the confusion, it’s my father who gets PC not my mother. My mother has quite a lot of excess income.

Yes they both made new wills last year (after taking legal advice) to take advantage of spousal exemptions, but whether this brings their joint net worth below £1m is dependent on how long they live and property values as it’s quite borderline (and there are large historical gifts which may or may not need to be included in the £1m depending on how many years pass).

Hopefully that explains why we are taking precautions to keep the relevant records and ensure her income and expenditure is categorised correctly (just in case).

dales1

It was with an abundance of caution that I treated my new boiler as an expense on the IHT403 - because in my case I could afford both the boiler and the gifts from my income.

However I do accept the case that big-ticket items (new car, new boiler) arising infrequently can be treated as coming from capital and can be left off the IHT403 form.

Sorry for muddying the water !