Inheritance Tax

redmalc

Hi All

I am lucky enough to be in a very nice position financially, 70 years of age with a pension pot of 600k I have already took the 25% tax free element .

I also have 250k in a S&S isa and me and my wife have cash isa,s approx 140k .

The pension and S&S isa has accumulated 105K this year , my question is could I draw that 105k and give it to my only son without any inheritance tax implications

Thanks

MallyGirl

as long as you survive 7 years after the gift (and there is a sliding scale if less than that) then IHT is avoided as far as I understand it

redmalc

I realise that but could the money not be classed as a gift out of profits not capital

DRS1

Where do you propose to draw the £105k from? The pension or the S&S ISA? If you draw it all from the pension it will certainly have some income tax implications for you!

redmalc

the S&S isa

SVaz

’Profits’ ( growth) have sod all to do with anything where ISAs are concerned.

For IHT, you simply need to survive 7 years before it drops out of IHT range.
You can take £6k off the amount immediately - this year’s + last year’s allowances, double that if it’s a joint gift from you and a Spouse.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82041898#Comment_82041898

I think you're confusing this with 'gifts out of income'. Have a look at https://www.gov.uk/inheritance-tax/gifts and note especially (my emboldening):

If you make regular payments

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They can include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.

For example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year.

The 7 year rule

No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.

If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.

Gifts given in the 3 years before your death are taxed at 40%.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

phlebas192

https://forums.moneysavingexpert.com/discussion/6673335/inheritance-tax

Simply put, no. There is an IHT exemption for gifts made from excess income that does not impact your standard of living but this does not apply to realised capital gains, let alone unrealised ones. You could possibly arrange things such that some of it does become income (eg money withdrawn from a SIPP is generally classed as income whether or not the ultimate source is from a capital gain) but there is a secondary consideration that the gifting has to be part of your normal expenditure which means that one-off gifts do not qualify.

If you want to make use of this exemption then you need to (a) establish a pattern of gifting such that your executors can demonstrate that it is part of your normal expenditure, (b) ensure that it is from actual income rather than capital and (c) not use any capital to support your normal expenditure.

Smudgeismydog

https://forums.moneysavingexpert.com/discussion/6673335/inheritance-tax

So £990k without including your house? Are you asking the question with regard to the pension being included in your estate after April next year?

Yorkie1

If you want to make use of this exemption then you need to (a) establish a pattern of gifting such that your executors can demonstrate that it is part of your normal expenditure, (b) ensure that it is from actual income rather than capital and (c) not use any capital to support your normal expenditure.

and (d) ensure your record keeping is detailed enough (if possible in line with the info in IHT form 403, I think it is, to allow your executors to claim that exemption.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82042103#Comment_82042103

And if you are seriously thinking about using this gift from excess income thing then have a look at that form and if that doesn't put you off the idea then you should fill it in every year (the chances of your executors being able to reconstruct the last 7 years of information after you have died must be remote).