Gifting from surplus income

prudent_saver

I have used this scheme once before running over 29 months.  The arrangements were clearly recorded, full income and expenditure records kept and, as far as I can tell, all HMRC conditions met.  I intend to use cash withdrawal and income drawdown from a SIPP to make further gifts from surplus income again in the future.  I have never been certain about the minimum time HMRC requres any arrangement to run.  There seems to be no definitive guidance from HMRC and I am not keen to rely on hearsay again in the future.  Can anyone advise please?  Many thanks

probate_slave

The test case is Bennett v IRC (1995). Mrs Bennett was the life tenant of a trust. The trustees paid £9,300 in 1989 to each of her three sons and £60,000 the following year. She then died.

The court agreed that the transfers were exempt. “There is no fixed minimum period during which the expenditure should have occurred … If the prior commitment or resolution can be shown, a single payment implementing the commitment or resolution may be sufficient … The amount of expenditure need not be fixed in amount nor indeed the individual recipient be the same.” (from Lesley King "Wills, Administration and Taxation Law and Practice" 2024 edition) 

See also HMRC's view of the case here:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14244

However, on the question of allowing cash withdrawals from a SIPP as income, others will need to advise.

poseidon1

prudent_saver said:

I have used this scheme once before running over 29 months.  The arrangements were clearly recorded, full income and expenditure records kept and, as far as I can tell, all HMRC conditions met.  I intend to use cash withdrawal and income drawdown from a SIPP to make further gifts from surplus income again in the future.  I have never been certain about the minimum time HMRC requres any arrangement to run.  There seems to be no definitive guidance from HMRC and I am not keen to rely on hearsay again in the future.  Can anyone advise please?  Many thanks

As regard Sipp withdrawals, see below technical briefing from Aberdeen 

https://techzone.aberdeenadviser.com/public/iht-est-plan/Tech-guide-IHT-Exemption#anchor_2

It appears if you take a UPFLS approach to your Sipp withdrawals the tax free element as well as the taxable portion is 'income' for the purposes of the exemption. 

Albermarle

probate_slave said:

The test case is Bennett v IRC (1995). Mrs Bennett was the life tenant of a trust. The trustees paid £9,300 in 1989 to each of her three sons and £60,000 the following year. She then died.

The court agreed that the transfers were exempt. “There is no fixed minimum period during which the expenditure should have occurred … If the prior commitment or resolution can be shown, a single payment implementing the commitment or resolution may be sufficient … The amount of expenditure need not be fixed in amount nor indeed the individual recipient be the same.” (from Lesley King "Wills, Administration and Taxation Law and Practice" 2024 edition) 

See also HMRC's view of the case here:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14244

However, on the question of allowing cash withdrawals from a SIPP as income, others will need to advise.

It is a complicated area, but I would guess these would be seen as outright gifts.

prudent_saver

Many thanks for these helpful comments.  Clearly, making plans very clear at the outset (as I did previously) is key.

Linton

I believe cash withdrawals from a SIPP are income as long as they are a regular payment.  A one-off large lump sum is withdrawal from savings rather than income..