Inheritance Tax

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/82058781#Comment_82058781

Indeed. Since marriage we have operated a joint current account for all the usual bills. It means that transactions are easy to find. I don’t use a sole current account day to day. That to me is completely normal behaviour in a marriage. Everything is joint and HMRC etc will just have to deal with that along with our financial notes.

Yes, hands up, in the past I’ve played the stoozing/bank account game to the point I’ll probably never qualify for anything ever again but that was a side show. Simple finances are key to us.

As for gifts I’ve paid by DD into daughters pension since her birth and even now she is an adult. I also make manual payments on top now I have the details. On her 18th we gave her £50k. Anyway, I doubt I’ll qualify for IHT, although the way we are going, but actively ensuring I don’t.

Strange thing is having been an executor for people that have been executors themselves didn’t enact what they learned to simplify what happens after they pass.

Cheers

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/82057544#Comment_82057544

Oddly, I just realised our SIPPS are growth focused but my S&S ISA is income focused. Every month I use the ii free trading credits to buy more income. Not really thought about IHT in this regard more about multiple income streams. Cheers

RogerPensionGuy

With the impending DC SIPP & IHT changes coming, gifting from surplus income certainly looks like a fair diversion route that may indeed work for some.

However, HMRC won't be sleeping & not watching this low hanging tax revenue passing by, it will be getting plenty of attention to pick it and if picking it is too hard, they will just change more rules I expect.

Unless GDP can be increased a lot, housing and pension wealth will be picking up the tax tabb heavily.

Scheme after scheme of helping to buy expensive housing, getting people in to more debts and trying to maintain & increase housing costs trying to keep some people happy appears to have no end in sight, actually building more housing to accommodate the population and the dynamics of social changes just remains the tin getting kicked down the road.

So housing wealth and wealth transfer as older generations pass on is just manor from the gods and must be captured taxed.

DC SIPPs are just the same, plenty of easy tax to be collected.

It will be an interesting few many decades to watch.

poseidon1

Due to its underlying complexity, I do not like the gifts out of suplus income IHT exemption that was last codified by Parliament under the very succinct terms of s21 (1) IHTA 1984 - below

https://www.legislation.gov.uk/ukpga/1984/51/section/21

However it is as well to note Parliament's original purpose in restating the exemption in 1984 which has exsisted under previous estate duty legislation as far back as the Victorian 1894 Finance Act .

The provision ( in its various guises over the decades) was designed to assist in halting the accumulation of excess wealth to allow individuals with high earnings to help family members during their lifetime without penalty, provided their own standard of living is maintained unaffected.

As such the provision was considered benign since the income gifted to family would then go on to be spent and disbursed in the wider economy sooner rather than later, as opposed to being 'stockpiled' by the donor until death.

As such it was designed with the high earning middle and upper classes in mind, since the working classes would largely be untroubled by inheritance tax/death duties and by definition most unlikely to have surplus income above their basic day to day needs in any event.

The original target demographic for the exemption over the last hundred years or so would also invariably be served by accountants and lawyers who would navigate the complex rules on their behalf.

Herein is the problem with the exemption, it ( as with much IHT legislation ) was not designed with the unrepresented and untutored ordinary members of the public in mind. The language of the legislation is not couched in language ordinary people can easily comprehend, and HMRC's internal guidance manuals are just that, primarily for internal consumption and reference by external trained tax professionals.

Its no wonder this subject regularly occurs on this forum, but there will be vanishingly few who have had sufficient personal experience in successfully claiming the exemption for a deceased estate on a DIY basis, to provide informed guidance and advice to others.

DT2001

In 2015/6 I constructed an income and expenditure worksheet for the last 7 years of the husband of a friend so that solicitors could try and claim this relief. I used bank statements and cheque stubs. Anything I could not identify clearly belonging to the categories on form 403 I put under other. I did not deal with HMRC however the solicitors advised me that there wasn’t any comeback after being asked how to information was put together. From memory the total of gifts exceeded £100k in the 7 years.

As it becomes more widely used hopefully greater clarity will be provided. I think as long as you do not push the boundaries and keep clear records it is worth trying. What are the alternatives?

Dead_keen

Herein is the problem with the exemption, it ( as with much IHT legislation ) was not designed with the unrepresented and untutored ordinary members of the public in mind.

I guess this is the same as the rules governing what kind of electrics a modern house has or how a car needs to be built to be allowed on the road.

The language of the legislation is not couched in language ordinary people can easily comprehend, and HMRC's internal guidance manuals are just that, primarily for internal consumption and reference by external trained tax professionals.

Personally, I think this IHT exemption is one of the easier ones to read. The two issues I see with it seem to be: (i) people do not actually read it and so have to devine what it means from other posts, and (ii) it is actually written in ordinary language (income, normal, expenditure, usual, etc) whereas some people like detailed prescriptive rules to tell you what these words mean. Certainly there are harder bits of the tax legislation to read and understand that are imbued with meaning from cases long ago (my favourite being s809EZDB).

michaels

I think the complication is that most people seeml both ISA and pension as being alternative wrappers to save for spending in retirement, the former being pretaxed and the later being post taxed - but then when you spend from these sources on retirement one is treated as spending from income and the other is treated as spending from capital.…

cfw1994

https://forums.moneysavingexpert.com/discussion/comment/82060057#Comment_82060057

Exactly this.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82060057#Comment_82060057

The ISA differs from DC pensions in that you can access it at anytime and is not earmarked for retirement. Such distinctions are common currency when dealing with cross border taxes as the clauses in double tax treaties apply different rules to pensions and general investment accounts. For example UK and US DC pension accounts are recognized under the US/UK tax treaty and distributions are taxed as income by both countries, but the US does not recognize the ISA wrapper and will tax the funds inside that are owned by a US tax payer as GIA funds. Hence, US citizens resident in the UK are often advised to avoid ISAs.

The nearest thing the US has to an ISA is the ROTH IRA which is funded with after tax money and grows tax free and has tax free withdrawals. However, it is explicitly a retirement account and its withdrawals have age restrictions so it is recognized by the UK as a retirement income account.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82060751#Comment_82060751

I think the point being - if you’re using a ‘non income’ vehicle for ‘income’ purposes, is it considered income by HMRC? and by extension, if it isn’t considered income, how are you able to prove ‘excess income’ for exemption?

if I have 10k coming in from a SIPP, and I pull 5k from an ISA - I have 15k. If I only need 10k for my expenses surely I can give the 5k ‘excess’ to my family. But:

• if that 5k was the ISA portion thats not income so doesn’t count
• if that 5k comes from the SIPP portion, there is an argument you can only gift that because you’re topping up with the ISA which also isn’t income.

It feels a bit like the recycling rules - they seem simple on the surface but you can tie yourself in knots trying to interpret (guess, frankly) how HMRC would interpret indirect angles on the core rules.