We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Inheritance Tax
Comments
-
Short answer: no as others have said — there's no "gift out of profits/growth" exemption, so you can't hand over the £105k of ISA growth free of IHT just because it's gains rather than original capital. Inside an ISA, growth is still capital for IHT, and giving it away is a Potentially Exempt Transfer (PET): free of IHT only if you survive 7 years (and taper relief only helps once your total gifts exceed the £325k nil-rate band).
What you may be confusing is the separate "gifts out of surplus income" exemption mentioned by others too, and it's stricter than it sounds: the gift has to be (a) genuinely from income, not from capital or ISA withdrawals, (b) part of a regular pattern, and (c) leave your normal standard of living unaffected. A one-off £105k lump drawn from the S&S ISA fails all three — ISA money is capital, and a single gift isn't "regular."
What you can do straight away with no 7-year wait: the £3,000 annual exemption, plus another £3,000 if you didn't use last year's — and if your wife joins in, double it. So up to ~£12,000 can leave the estate immediately, with the balance a PET on the 7-year clock.
Worth zooming out too: from 06/04/2027 your £600k pension also comes into your estate for IHT, which may matter more to the overall picture than this one gift — so plan the pension, ISAs and gifting together rather than in isolation. If you do want to build a genuine income-gifting pattern later, keep records in the shape from the start so there is proof when the time comes.
Given the size of the estate, this may be one to run past a regulated adviser / tax specialist before acting.
0 -
If you do gift £6000 plus same from wife using this year’s and last year’s gift allowances and then want to gift the rest as a potentially exempt transfer that falls out of your estate after 7 years, you can share that big gift as some from you and some from wife. Reduces the potential IHT if only one of you dies within 7 years.
1 -
What's defined as income for purposes of "gifts out of surplus income"? Do DB pensions and SP count? Do DC pension withdrawals count?
For example. If my living expenses are £50k/year and those are covered by a DB pension and SP, could I then make annual withdrawals from my DC pension accounts and gift them and qualify for the "gifts from surplus income"?
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
pensions count as income for these purposes yes. ISAs do not (which complicated my idea of slicing my pension up to 50k and putting it into an ISA in case we need a large withdrawal in the future)
0 -
Yes I read that living of your ISA to gift your pensions would not be allowed by HMRC. So it seems that if you have a large DC pension pot relative to your income needs you can avoid IHT and the 7 year rule by making regular gifts of part of your DC drawdown. So it might be a good idea to produce a spreadsheet each year of your "Expenses paid from DC drawdown, DB and SP" with line items like: 1) electricity 3k; food 6k; car/petrol 2k; taxes; 10k ….gift to Jack 10k; gift to Jill 10k etc.
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
(a) genuinely from income, not from capital or ISA withdrawals,
To be clear, income generated within an ISA (eg interest or dividends) is income for gifting purposes. Indeed, it is income whether or not it is actually withdrawn from the ISA since money is fungible. eg if you have £100k in a cash ISA earning 4% pa then that is generating £4,000 of income which can be gifted under the exemption. What you cannot do is withdraw, say, £10k and claim that it is income.
0 -
Is that right? I had always assumed that any interest compounded into a cash ISA immediately became capital and would not be available for gifting from income purposes. I thought I would need to have it paid away to count as income.
0 -
You are correct. HMRC rather arbitrary internal guidance appear to presuppose that any income accumulated after a two period, becomes capital - see below
0 -
So your link states that the capital used to purchase an annuity isn't considered as income for purposes of the IHT gift exemption. So why would withdrawals form a DC pension be any different?
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
If those withdrawals from the DC pension are taxable pension income then they equate to the annuity payments received from the annuity. You should think of the capital used to buy the annuity as akin to a transfer from one pension to another in that you haven't actually taken it out into your hands. It has just gone from the pension to the annuity provider.
If the withdrawal from the DC pension is a single TFLS then it would be capital.
UFPLS is a mongrel which seems to be regarded as all income even though strictly it isn't
0
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 354.9K Banking & Borrowing
- 254.6K Reduce Debt & Boost Income
- 455.7K Spending & Discounts
- 247.7K Work, Benefits & Business
- 604.7K Mortgages, Homes & Bills
- 178.7K Life & Family
- 262.3K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.7K Read-Only Boards