Inheritance tax and Gifting from excess income

Madeinireland101

With regards to inheritance tax and gifting out of income - Can I increase my opportunity to gift more out of income by taking the following approach.

If my annual income is £40k and my normal expenditure is £30k then I would be normally able to gift £10k out of excess income. Now say I give separately a potential exempt gift of £5k to my daughter from capital which she uses to purchase a holiday for her and me. Assuming my normal expenditure then reduces by £5k to £25k as a result of no longer having to purchase a holiday - does that enable me to now gift £15k out of excess income? 😀

Will this work - I can’t see anything in it against any rules - or have I missed something?

Thanks.

Keep_pedalling

Sounds like tax fraud to me

sheramber

But the gift out of capital would not be exemlt so how does it benefit you.

£10k excess income not chargeable and no gift from capital chargeable

£15k excess income not chargeable and £5 from capital chargeable

Madeinireland101

First of all I can’t see where the tax fraud is - all gifts seem to meet the rules. I can only see that it would be an issue if I had some agreement such that my daughter HAD to buy me a holiday (which is just an example). It would hardly be my fault if she decided herself to buy me something with what would be her money and as a result my normal expenditure reduces. But if it is considered fraud then fair enough - that’s why I’m asking here to clarify.

Sheramber - you are quite right there is no monetary benefit but you do gain from the fact that your gift out of excess income would be IMMEDIATELY free of inheritance tax whereas the potentially exempt gift of £5k would require 7 year survival. So overall I’ve given £20k - with £15k immediately free and £5k requiring 7 year survival and obviously potentially a reduction in my normal expenditure of £5k with this example.

Keep_pedalling

What you are proposing is a contrivance which is why I think it is fraud,  one that you would get away with as you would be dead. I don’t think it fare to leave your executor to have to deal with this.