IHT recording giving advice

2childmum2

If DH and I died (one after the other) the second person to die's  estate would not be liable for IHT at the moment.  However, our house is gradually increasing in value and as I have elderly parents it is possible we may inherit some money and that would put the estate above the threshold for paying inheritance tax.

We have therefore decided it is wise to begin to record gifting in case we don't survive 7 years!

As background info, up until this tax year I had no income and all DH money went into a joint account and we considered this to all be 'our' money.  We have shared our income all our married lives, as per our wedding vows and would choose to continue to do this, but we are aware that this may cause some issues re working out who has given what!  DH took early retirement at the beginning of this tax year and took out an annuity and I now have a small pension, so he now has income of approx 4 times mine.  All going into our joint account.  We also have savings accounts, mainly in my name for tax reasons.



 Do we have to record every small gift within the £250 limit - eg we have bought our nephew a Christmas present worth £10 from the joint account -  do we have to record that we gave him £5 each.  Or can we just say that any gifts to family or friends have all been well below the £250 and not go into details.  We don't give gifts of anything like this value even to our children. I can't go back 7 years to try and work our how much we have given each year!  I am aware of the 'birthday and Christmas gifts out of regular income' clause but income before this tax year was all my husbands, ( and gifts have come out of our joint account, so I'm not sure how we would work that out) and income this tax year (and until state retirement age ) will be  supplemented from savings.


We have given our daughter a gift of £20000 this tax year (ie £10000 from each of us) and I know we can give £3000 a year  before it counts towards being part of our  estate if given within the last 7 years, and that we can carry forward this allowance for one tax year.  We also gave her about £800 (£400 each)last tax year for university.  Am I correct in  thinking that we could therefore carry forward  £3000 - £400 ie £2600 to this tax year.  Or I could work out our outgoings for last year and then use the 'gifts from excess income' rule but 1) I'm not sure how that would work if the income was all my husbands but then that all went into our joint account and our outgoings and giving to our daughter came out of that and 2) we gave for the first 8 months of the year but not the rest of the year - does it have to be regular for the whole of the tax year.   Can we use the 'regular giving' rule and the £3000 a year rule for the same person in the same tax year?  ( I know we can't combine the £3000 and the £250s)

I hope this makes sense!!  All the examples etc I can find only seem to apply to single people, or to people that have independent incomes and accounts and don't support one another.

Thank you for your help

Albermarle

The Gifts from excess income is quite tricky. Your executor (s) on second death would have to have very clear paperwork to prove to HMRC that it was excess income, and as part of that it should be regular every month.


There is obviously a grey area around certain 'gifts' that are not outright gifts, such as paying for a family meal, or even funding a family holiday and the daughter goes free. I think most people would not record these as gifts.

As you are not even in IHT territory yet , I would not go too mad with the giving. You might need the money yourself one day.

poseidon1

Also remember if you both eventually inherit from elder parents, you can always divert part or all to your children by deed of variation, so those presumptive inherited assets never touch your estates in the first place.

Always have DOVs uppermost in your minds in these circumstances, can be very effective estate planning.

2childmum2

We aren't planning on giving very much. The money for our daughter was from money my DH inherited from his mum and we have a similar amount to give to our son but he is currently in the states.
Apart from that, and possible wedding gifts, we don't intend to give more than small amounts for Christmas and Birthdays ( well within the £250) - but I need to know whether I need to keep detailed records or not.

Smudgeismydog

From what you’ve said, the only gift that might need recording is the £20,000 gift to your daughter, and as this was from money your DH inherited, if you had used a deed of variation (DOV), then it wouldn’t be classed as a gift. 

Small gifts of less than £250 do not need to be recorded or reported. Birthday and Christmas gifts funded from your regular income are exempt.

Deeds of Variation can be made within 2 years of the death. When did your mother in law due, could you do this for the planned gift to your son? Does your son have a UK bank count you can gift this into if you don’t want to gift to him while he is abroad?

2childmum2

Thank you for your answer. I was under the impression that a deed of variation would be treated the same as if my DH had inherited the money and then given it away, although I may be thinking about it counting as deprivation of assets for benefits and /or care home fees.
MiL died more than two years ago anyway.

Our son doesn't need the money yet, so we may be able to spread the gifting over more than one tax year. He does have a bank account here but not a savings account he can pay into so he would lose interest if we gave it to him now.

It's good to know we don't have to record gift under £250 - that will make life much easier

Thank you again

DRS1

Just in case you were harbouring any thoughts of using the gifts from excess income thing you might want to look at the attached especially point 9
Gifts out of surplus income - 15 points to consider

Albermarle

DRS1 said:

Just in case you were harbouring any thoughts of using the gifts from excess income thing you might want to look at the attached especially point 9
Gifts out of surplus income - 15 points to consider

Without getting into the budget speculation frenzy too much, there has been talk of tightening the IHT rules on gifts.
Gifts out of surplus income is a relatively niche activity, and  could be a target as the numbers of people 'losing out' would not be very big. 

2childmum2

DRS1 said:

Just in case you were harbouring any thoughts of using the gifts from excess income thing you might want to look at the attached especially point 9
Gifts out of surplus income - 15 points to consider

Thank you for this. I think we have already come to the conclusion that, in our situation, this would be too tricky to apply.

Apart from the lump sum we gave our daughter the only other gifting we have made over the £250 has been university expenses which have been well below the £3000 each year.

Going forward I think we will also transfer money we wish to gift into separate bank accounts before gifting it as that will make recording it slightly easier.

If someone could clarify whether we can carry forward part of last tax year's £3000 to this tax year, or whether it can only be the full amount that would be helpful.

Thank you

DRS1

2childmum2 said:

DRS1 said:

Just in case you were harbouring any thoughts of using the gifts from excess income thing you might want to look at the attached especially point 9
Gifts out of surplus income - 15 points to consider

Thank you for this. I think we have already come to the conclusion that, in our situation, this would be too tricky to apply.

Apart from the lump sum we gave our daughter the only other gifting we have made over the £250 has been university expenses which have been well below the £3000 each year.

Going forward I think we will also transfer money we wish to gift into separate bank accounts before gifting it as that will make recording it slightly easier.

If someone could clarify whether we can carry forward part of last tax year's £3000 to this tax year, or whether it can only be the full amount that would be helpful.

Thank you

Yes you can carry forward the unused bit see the example on this page under annual exemption
How Inheritance Tax works: thresholds, rules and allowances: Rules on giving gifts - GOV.UK