Inheritance Tax

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82044950#Comment_82044950

Well then you'd fall back on the 7 year rule. Whatever you do, keeping good records is vital to show HMRC the pattern of your gifting as well as the sources.

AlanP_2

We have started gifting from excess income and a question has occured to me.

The gifts come from a joint account so which if us is doing the gifting?

Is it safe / realistic to work on the principle that the gifts will be treated as if they had come from the longest lived of us as far as IHT and HMRC are concerned?

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82046170#Comment_82046170

No that is not case. The focus will be on the spouse who has the highest demonstrable surplus income, so depending on the relative levels of your personal income, the reality maybe that one spouse subsidies the other in a joint account gift scenario.

Sounds like you may need to go back and review the basic principles of how this exemption operates, and understand the trouble your executors will be put to in trying to claim the exemption when you eventually pass.

Your record keeping on their behalf needs to be clear and unambiguous, and I would suggest gifting from a joint comingled account will not make that excercise any easier.

Fermion

https://forums.moneysavingexpert.com/discussion/comment/82044910#Comment_82044910

If you hold your S&S ISA funds as income funds rather than accumulation funds and then withdraw the dividends, the dividends also count as income alongside pensions and annuity income

AlanP_2

https://forums.moneysavingexpert.com/discussion/comment/82046193#Comment_82046193

Thanks, I'll have to do some more research by the sounds of it.

Our pension incomes go into the joint account and the DD payments of the amount we are currently gifting (JISA and JSIPP contributions for 1 grandchild) are paid out of it.

All our expenditure comes out of joint accounts so identifying which one of us has the "surplus income" would be tricky. Jointly we have plenty of surplus but pinning amounts down to an individual......

I guess P60 amounts might be the definitive "answer" for individual incomes and then allocate 50% of annual spend to each of us would work retrospectively each year.

Does the name of the "source of funds" payee on the two accounts applications come in to it?

If it does then these gifts are from my wife as she filled them in. She is currently the one with the highest income / surplus as she is still working part time. Will be a more even split when she fully retires, say 60/40 in her favour before any DC withdrawals are made.

DT2001

Below is a paragraph from Aberdeen’s technical help zone. ISA natural income that is paid out counts. Maybe adjusting holdings between SIPP and ISAs could facilitate a larger total income.

Not sure at what level withdrawals from SIPP might flag an issue. Presumably 4% p.a. would be fine but would HMRC challenge 10% (as not sustainable) or is it fine as it is taxed?

Income

5. What is included as income?

Gifts must normally be made from current net income received in a tax year (spendable income after income tax has been deducted) and not capital. Income for the purposes of the exemption is not the same taxable income.

It is broadly income received after tax from employment or pension, the natural yield from investments such as interest or dividends and rental income. It also includes the natural income from ISAs if the taxpayer actually receives the distribution rather than accumulating it within their ISA.

Regular payments from a purchased life annuity will normally be received as part interest and part return of capital – only the interest element can be included in income for the exemption.

michaels

Interesting so we would need an ISA product that 'paid away' interest or dividends for this to count as income rather than capital. Are there any suitable candidates for ISAs and 'funds'?

MallyGirl

Is it not just the inc version not the acc?

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82046501#Comment_82046501

I think a continuing and regular pattern of gifting from a DC pension is important to demonstrate. Whether that's over 10 or 20 years might be important, but I think you'd be pretty safe if you set your gifts to be something close to the payout rate of a lifetime retirement annuity you could buy.

cfw1994

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

I’d be very interested to know if anyone has done this, to a degree you (or your IFA!) are confident it will work. If you have a template of what is done, even better 💪

To the OP - note that the £390k in ISAs you have cannot be used in the calculations - it has to be ‘regular’ income, such as from pension or annuity (feel free to correct me if I am wrong, but I don’t think I am).

We have a similar dilemma, although this is perhaps tempered by the fact the markets have done so well, & are therefore perhaps likely to fade/crash/pullback at some point 🫣