Gifts from surplus income and the 7 year rule

Hal17

I need some help to clarify my thinking please? I have been gifting from surplus income for 5 years now.

If I continue to make regular gifts in the years ahead and each tax year goes beyond the 7 year IHT rule, can I ignore the gift value for that year as "gifting from income" and just treat that value as being outside the 7 year IHT allowance?

tacpot12

Yes. The exemption for regular gifts from excess income is claimed after your death, so if seven years have passed your executors would not need to claim the gift an being from excess income; it's no longer relevant for IHT.

Even so, you may want to keep your records about such gifts in case you have to stop a gift you have been giving for many years. These records might be useful to establish the regularity of the gifting, if you die a short time after stopping the gifts.

DRS1

Assuming you have been documenting the gifts from surplus income you may want to keep that evidence handy even if it is more than 7 years old. You can envisage a situation where your gifts from surplus income tail off (eg because your expenses go up) and your executors could use the evidence to show a regular pattern of gifting from income if they get challenged about gifts in the last 7 years.

horace972897

I believe you can also pay for things for the people you wish to leave money to on a regular basis as long as it's out of income. EDIT EXCESS Income (Thanks @Keep_pedalling )

So you could pay for childcare or their gas bill or into a JISA - as long as you keep records and it's regular and out of income i believe it falls outside of inheritance tax even if you die within seven years.

I think it's called the “Normal expenditure out of income” exemption

This is a specific IHT exemption if:

The payment is made out of your income (not savings or capital),

It’s regular or part of a pattern, and

It does not reduce your standard of living

Hal17

Thank you all for your replies, much appreciated. I thought my understanding was correct but you never know. Very good points about keeping all the records available. Even when the gifts are outside the 7 year period I intend to keep the documentation with my personal information.

I have enjoyed keeping detailed records, love a bit of spreadsheet work. However, the best bit is seeing family enjoy the benefits that our surplus income has provided. Thanks again.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81892780#Comment_81892780

Not strictly true, it has to be from excess income, and to show it is excess you need to record your expenditure along with the gifting otherwise you leave your executors with a difficult task to claim it.

BikingBud

https://forums.moneysavingexpert.com/discussion/comment/81892984#Comment_81892984

Seeing the family enjoy it has to be the most important thing, much better than leaving it to sort out after you've gone and the squabbling starts.