Normal expenditure out of income

Fiacre

Despite no longer having to, I continue making regular payments to my ex-wife to help cover most of her bills by basically transferring the same amount of cash from my bank account every month. I have been doing this for several years as I can afford to and she is in a low paid job. It now transpires I may not have many years left but am worried I am going to leave a tax bill for my present wife because of these 'gifts'.

Can these payments be counted as normal expenditure out of income? Am yet to prepare my will and worried what to say in case it opens a whole can of worms. Can I put what I am paying out of the equation to my solicitor/executor.

If it matters, I am not a home owner (ex-wife got the house) but I have savings and a decent pension pot.

tacpot12

Sorry to hear you are having to come to terms with your bad news. I think you are wise to consider all aspects of your situation. I would recommend that you spend some of your savings on yourself.

These payments appear to be gifts out of surplus income, and hence exempt from Inheritance Tax. You have been making them regularly.You need to check that the payments have been made from taxed income, haven't affected your ability to save and haven't affected your lifestyle or forced you to dip into your capital to maintain your lifestyle. If all this checks out, you just need to make sure there are some records that substantiate all the above. Patterns are important here.

You don't need to mention these gifts in your Will, but it would be wise to make sure your Executors know where your records are.

You might want to consider leaving your ex-wife a bequest in your Will to allow her to invest it to replace some of the income she will lose when you pass, bearing in mind that predictions of how long you might survive can be quite inaccurate.

If you haven't started to setup your records,, you might take a look at this article to see if this helps get you started:

Why I spent a year making a spreadsheet to help families after a death | by Tom Hiskey | Medium

As well as updaing your Will, you should also consider if you want to make Powers of Attorney for your Financial Affairs and Health & Welfare.

poseidon1

https://forums.moneysavingexpert.com/discussion/6674980/normal-expenditure-out-of-income

Rather than glibly state what you are doing is or is not within the gifts out of surplus income IHT exemption ( you give no relevant details for anyone to form a view) I suggest you closely examine page 8 of form IHT 403 below.

https://assets.publishing.service.gov.uk/media/6a38f59a00ff27f06e3efb7e/IHT403-06-26.pdf

This section of the form is what the executors ( your current wife?) will have to complete for the relevant tax years to demonstrate the exemption applies in your case. Is your financial record keeping of sufficiency clarity and accuracy to assist your executors in this task?

However that said, if you have not been using your £3000 annual gifts exemption in favour of anyone else, bear in mind that can mitigate your annual gifts to your ex wife if retrospective analysis of your finances by your executors reveal you really did not have the excess income (as defined by the rules) to gift from that source.

Finally if you are serious about trying to ensure your income gifts eventually qualify as such, you may wish to acquaint yourself with the granular detail of exactly how this exemption works per the article below. It is far from straightforward.

https://techzone.aberdeenadviser.com/public/iht-est-plan/gifts-out-of-surplus-income

Keep_pedalling

Your estate will only have a tax bill if you have gifted over £325k in on exempt gifts the 7 years prior to your death.

GrubbyGirl_2

I appreciate this is a bit random and I'm sorry if this touches a nerve so please don't take offence, but have you married again or are you in a new relationship? You clearly care for your ex wife or you wouldn't still be supporting her. If you haven't moved into a new relationship have you thought about getting remarried to make life simpler for her?

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82057509#Comment_82057509

You seem to have completely missed the fact that he does not want to lumber his present wife with an IHT bill by reason of this arrangement- clearly stated in his post,

Daniel54

I have always had a query around the issue of regular gifting,as have many others.In particular the need to keep close records.

Unlike the OP I am physically but not legally separated from my wife and provide her with an agreed monthly share of my occupational pensions.I also gift £300 per month each to my two offspring.

My monthly bank statements clearly show an excess of fixed regular income over regular outgo,including the gifting.Should HMRC ever wish to look into this gifting,then I am satisfied that seven years of bank statements would satisfy their curiosity.

NedS

https://forums.moneysavingexpert.com/discussion/comment/82057509#Comment_82057509

OP mentions concern about leaving a tax bill for their current wife.

GrubbyGirl_2

https://forums.moneysavingexpert.com/discussion/comment/82057527#Comment_82057527

Sorry I missed that

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82057523#Comment_82057523

That is not much use to your executors who really need a record of both gifting and expenditure, rather than having to trawl through 7 years of bank statements which won’t even be possible if you are one of those people who regularly switch accounts. The only time HMRC are likely to question the gifting is after you are dead.

Have a look at page 8 of IHT403 to see what info your executors will need to claim this exemption and srart keeping records to make it easy for them.

Daniel54

https://forums.moneysavingexpert.com/discussion/comment/82057743#Comment_82057743

Thanks but ….

I have had the same principal bank account for over 50 years.No regular gifting from any other accounts I have

I keep paper records in separate files .My executors know where these are and know the amounts ,because they are the recipients.

So the paper trail is known and secure .When I have made one off large gifts,these have of course been appropriately documented.