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Post by moonraker on Dec 1, 2023 10:36:29 GMT
For some years now, I've been agonising about the IHT implications of giving gifts and bewailing the fact that the £3,000 yearly allowance has remained the same for more than 25 years. I was particularly generous early in Lockdown when several friends found themselves in straitened circumstances (one, long resident in the UK, left in a rush on one of the very last flights back home to the United States).
Belatedly I discover that "Birthday or Christmas gifts you give from your [annual] regular income are exempt from Inheritance Tax". (HMRC website)
Ever the pedant, I am trying to find out from HMRC whether "regular income" relates to gross or taxed, whether income from ISAs and VCTs can be included,and how close to (or distant from) the events the gifts can be made. In the summer a friend asked me for her birthday and Christmas presents in advance to pay for medical treatment after her new boy-friend accidentally chopped off two of her fingers - now re-attached.
It goes without saying writing that records of all gifts should be kept lest awkward questions be asked after one's death.
HMRC's initial response was less than helpful and didn't answer the above questions (which I've now asked again): "What you do with your income, after tax deducted, is up to you.You would only need to keep records in the event of possible Inheritance Tax as payments made within 7 years of you passing are counted as part of your estate."
As I wallow in resolving this matter, I console myself by recalling various newspaper articles about gifts by "financial experts" that were very general and occasionally inaccurate. I can't think of any that mentioned the "Birthday or Christmas gifts" factor.
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Post by bracknellboy on Dec 1, 2023 11:29:44 GMT
... In the summer a friend asked me for her birthday and Christmas presents in advance to pay for medical treatment after her new boy-friend accidentally chopped off two of her fingers - now re-attached.
...
are they still together ? (the couple, not the fingers)
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Post by moonraker on Dec 1, 2023 11:56:05 GMT
Yes, she and her new (newish, now) boy-friend are still together and, judging from her Facebook pages, are very happy. Her fingers are healing well. I didn't mind the pics she sent me of her hand in bandages and splint, but could have done without the one of the detached fingers.
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pikestaff
Member of DD Central
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Likes: 1,484
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Post by pikestaff on Dec 1, 2023 12:41:24 GMT
For some years now, I've been agonising about the IHT implications of giving gifts and bewailing the fact that the £3,000 yearly allowance has remained the same for more than 25 years. I was particularly generous early in Lockdown when several friends found themselves in straitened circumstances (one, long resident in the UK, left in a rush on one of the very last flights back home to the United States).
Belatedly I discover that "Birthday or Christmas gifts you give from your [annual] regular income are exempt from Inheritance Tax". (HMRC website)
Ever the pedant, I am trying to find out from HMRC whether "regular income" relates to gross or taxed, whether income from ISAs and VCTs can be included,and how close to (or distant from) the events the gifts can be made. In the summer a friend asked me for her birthday and Christmas presents in advance to pay for medical treatment after her new boy-friend accidentally chopped off two of her fingers - now re-attached.
It goes without saying writing that records of all gifts should be kept lest awkward questions be asked after one's death.
HMRC's initial response was less than helpful and didn't answer the above questions (which I've now asked again): "What you do with your income, after tax deducted, is up to you.You would only need to keep records in the event of possible Inheritance Tax as payments made within 7 years of you passing are counted as part of your estate."
As I wallow in resolving this matter, I console myself by recalling various newspaper articles about gifts by "financial experts" that were very general and occasionally inaccurate. I can't think of any that mentioned the "Birthday or Christmas gifts" factor. I happen to be dealing with IHT at the moment, so I'm on top of this. Per page 74 of HMRC's Guidance on completing your Inheritance Tax account assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1118154/IHT400-Notes-English-2022.pdf exemptions include: " Lifetime gifts that represent normal expenditure out of the transferor’s income. These are exempt provided that the transferor’s established standard of living is not reduced by the gifts, that the gifts came out of income [which means after tax income from all sources] and not capital and there is an established pattern of giving. These gifts can include:
• monthly or regular payments to someone - including gifts for Christmas or other festivals, birthdays or other anniversaries [...]"
HMRC asks for seriously comprehensive details of income and expenditure - see page 8 of form IHT403 assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdfWhether there's an established pattern of giving will be a question of fact. Provided there is an established pattern I doubt that HMRC will object if a gift is made early, but you should keep a record of what you did and why. This only matters if (a) the gifts are made within 7 years of death (which you cannot know when the gifts are made) and (b) the estate (including gifts within 7 years of death) is big enough that IHT is payable.
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Post by Ace on Dec 1, 2023 12:50:26 GMT
For some years now, I've been agonising about the IHT implications of giving gifts and bewailing the fact that the £3,000 yearly allowance has remained the same for more than 25 years. I was particularly generous early in Lockdown when several friends found themselves in straitened circumstances (one, long resident in the UK, left in a rush on one of the very last flights back home to the United States).
Belatedly I discover that "Birthday or Christmas gifts you give from your [annual] regular income are exempt from Inheritance Tax". (HMRC website)
Ever the pedant, I am trying to find out from HMRC whether "regular income" relates to gross or taxed, whether income from ISAs and VCTs can be included,and how close to (or distant from) the events the gifts can be made. In the summer a friend asked me for her birthday and Christmas presents in advance to pay for medical treatment after her new boy-friend accidentally chopped off two of her fingers - now re-attached.
It goes without saying writing that records of all gifts should be kept lest awkward questions be asked after one's death.
HMRC's initial response was less than helpful and didn't answer the above questions (which I've now asked again): "What you do with your income, after tax deducted, is up to you.You would only need to keep records in the event of possible Inheritance Tax as payments made within 7 years of you passing are counted as part of your estate."
As I wallow in resolving this matter, I console myself by recalling various newspaper articles about gifts by "financial experts" that were very general and occasionally inaccurate. I can't think of any that mentioned the "Birthday or Christmas gifts" factor.
This thread on the HMRC Community forum says that dividends count towards the income: community.hmrc.gov.uk/customerforums/pt/95998249-f6c4-ed11-9ac4-00155d9771aa. So, presumably, any regular investment income would count. It will relate to your net income rather than gross. You have to be able to show that the gift came from your income for that year, which would be problematic if the gift was more than your post tax income.
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Dec 1, 2023 13:02:33 GMT
For some years now, I've been agonising about the IHT implications of giving gifts and bewailing the fact that the £3,000 yearly allowance has remained the same for more than 25 years. I was particularly generous early in Lockdown when several friends found themselves in straitened circumstances (one, long resident in the UK, left in a rush on one of the very last flights back home to the United States).
Belatedly I discover that "Birthday or Christmas gifts you give from your [annual] regular income are exempt from Inheritance Tax". (HMRC website)
Ever the pedant, I am trying to find out from HMRC whether "regular income" relates to gross or taxed, whether income from ISAs and VCTs can be included,and how close to (or distant from) the events the gifts can be made. In the summer a friend asked me for her birthday and Christmas presents in advance to pay for medical treatment after her new boy-friend accidentally chopped off two of her fingers - now re-attached.
It goes without saying writing that records of all gifts should be kept lest awkward questions be asked after one's death.
HMRC's initial response was less than helpful and didn't answer the above questions (which I've now asked again): "What you do with your income, after tax deducted, is up to you.You would only need to keep records in the event of possible Inheritance Tax as payments made within 7 years of you passing are counted as part of your estate."
As I wallow in resolving this matter, I console myself by recalling various newspaper articles about gifts by "financial experts" that were very general and occasionally inaccurate. I can't think of any that mentioned the "Birthday or Christmas gifts" factor. I happen to be dealing with IHT at the moment, so I'm on top of this. Per page 74 of HMRC's Guidance on completing your Inheritance Tax account assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1118154/IHT400-Notes-English-2022.pdf exemptions include: " Lifetime gifts that represent normal expenditure out of the transferor’s income. These are exempt provided that the transferor’s established standard of living is not reduced by the gifts, that the gifts came out of income [which means after tax income from all sources] and not capital and there is an established pattern of giving. These gifts can include:
• monthly or regular payments to someone - including gifts for Christmas or other festivals, birthdays or other anniversaries [...]"
HMRC asks for seriously comprehensive details of income and expenditure - see page 8 of form IHT403 assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdfWhether there's an established pattern of giving will be a question of fact. Provided there is an established pattern I doubt that HMRC will object if a gift is made early, but you should keep a record of what you did and why. This only matters if (a) the gifts are made within 7 years of death (which you cannot know when the gifts are made) and (b) the estate (including gifts within 7 years of death) is big enough that IHT is payable. So theoretically you could give someone half your monthly (after tax) income every month provided it didn't affect your standard of living?
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Post by Ace on Dec 1, 2023 13:05:36 GMT
I happen to be dealing with IHT at the moment, so I'm on top of this. Per page 74 of HMRC's Guidance on completing your Inheritance Tax account assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1118154/IHT400-Notes-English-2022.pdf exemptions include: " Lifetime gifts that represent normal expenditure out of the transferor’s income. These are exempt provided that the transferor’s established standard of living is not reduced by the gifts, that the gifts came out of income [which means after tax income from all sources] and not capital and there is an established pattern of giving. These gifts can include:
• monthly or regular payments to someone - including gifts for Christmas or other festivals, birthdays or other anniversaries [...]"
HMRC asks for seriously comprehensive details of income and expenditure - see page 8 of form IHT403 assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdfWhether there's an established pattern of giving will be a question of fact. Provided there is an established pattern I doubt that HMRC will object if a gift is made early, but you should keep a record of what you did and why. This only matters if (a) the gifts are made within 7 years of death (which you cannot know when the gifts are made) and (b) the estate (including gifts within 7 years of death) is big enough that IHT is payable. So theoretically you could give someone half your monthly (after tax) income every month provided it didn't affect your standard of living? Yes, or even more with that same caveat.
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Post by bernythedolt on Dec 1, 2023 14:53:25 GMT
Expanding on pikestaff's note, I remember reading this little known* trick in the Telegraph a month ago. The rule is called "gifts out of surplus income" and yes, they do need to be regular (to demonstrate it was surplus, affordable, out of income, etc), but there is no limit, provided you stay within the surplus income constraint. *An FOI request from the Telegraph established that only 430 families took advantage of it last year. The article will be paywalled... www.telegraph.co.uk/money/tax/inheritance/inheritance-tax-gifts-surplus-income-unlimited-gifting. So hopefully this should work for others... web.archive.org/web/20231130143135/https://www.telegraph.co.uk/money/tax/inheritance/inheritance-tax-gifts-surplus-income-unlimited-gifting/Some highlights:- - "The rule allows any taxpayer to give away unlimited sums of money without getting caught by IHT – as long as the gifts do not diminish their quality of life and the money comes out of income, not capital."
- "They must be part of “normal expenditure”, which means there should be a regularity to the payments. The gifts must come out of income – for example, employment or pension income – and not capital." It goes on to define normal expenditure.
- "They must not diminish your standard of living: you should be able to afford the gifts once you have paid your normal outgoings."
A regular pattern of gifts ought to be established and, as mentioned, records need to be kept and will be scrutinised. |
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pikestaff
Member of DD Central
Posts: 2,136
Likes: 1,484
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Post by pikestaff on Dec 1, 2023 15:05:29 GMT
So theoretically you could give someone half your monthly (after tax) income every month provided it didn't affect your standard of living? Yes, or even more with that same caveat. Agreed.
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Post by moonraker on Dec 1, 2023 15:44:44 GMT
Yet the link that I gave in my opening post said nothing about birthday and Christmas presents being "regular", nor does the advice given in the forum thread to which Ace links. And that thread, as yet, does not warn of the nightmare form IHT403 that Pikestaff mentions. I looked at this a few years ago and wondered how on earth could anyone accurately complete this after my death. The two cousins who are my executors know nothing of my finances.
Availing myself just a little of the "birthday and Christmas" concession in the future would be "convenient" but not crucial and not worth the apparent hassle. To "wipe" the IHT implications of my previous generosity I just need to live another three or four years ...
Thanks to you all for your useful comments.
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Post by Ace on Dec 1, 2023 15:48:47 GMT
Yet the link that I gave in my opening post said nothing about birthday and Christmas presents being "regular", nor does the advice given in the forum thread to which Ace links. And that thread, as yet, does not warn of the nightmare form IHT403 that Pikestaff mentions. I looked at this a few years ago and wondered how on earth could anyone accurately complete this after my death. The two cousins who are my executors know nothing of my finances.
Availing myself just a little of the "birthday and Christmas" concession in the future would be "convenient" but not crucial and not worth the apparent hassle. To "wipe" the IHT implications of my previous generosity I just need to live another three or four years ...
Thanks to you all for your useful comments.
The "regular" requirement doesn't apply to the Xmas and birthday gifts.
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Post by moonraker on Dec 1, 2023 16:14:45 GMT
Yet "IHT400 Notes" says: "These gifts [out of normal expenditure] can include monthly or regular payments to someone - including gifts for Christmas or other festivals, birthdays or other anniversaries." The implication (or the inference I draw) is that such gifts do need to be regular. And "other anniversaries" raises interesting loopholes opportunities. What sort of anniversaries: wedding anniversaries perhaps? Engagement anniversaries? And other festivals: I can see this might interest members of certain faiths, including Christians who could show their generosity at Easter and on New Year's Day?
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Post by mostlywrong on Dec 1, 2023 18:45:56 GMT
So theoretically you could give someone half your monthly (after tax) income every month provided it didn't affect your standard of living? Yes. Within the last couple of years, HMRC lost a battle with a rich estate where IHT was levied on all of the (apparently substantial) gifts out of income. I cannot remember whether it was a tax tribunal or a court case but the reporter indicated that it was a significant decision.
MW
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Post by mostlywrong on Dec 1, 2023 18:51:30 GMT
The IHT403 form has to be our guide.
At the top it says:
/snip
Do not tell us about any gifts where the total value was £3,000
or less in any tax year, small amounts of £250 or less or if the
gifts were made to a spouse or civil partner.
/snip
I note that I have seen elsewhere that multiple gifts of £250 to the same person are not permitted (unless out of income as discussed).
I therefore assume that gifts of £249 will pass the test!
MW
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Post by moonraker on Dec 1, 2023 19:21:46 GMT
"Your [surplus] income is comprised of all income, including non-taxable income such as ISA interest and/or dividends and some benefits in addition to premium bond winnings," according to one expert.
And another aspect of Christmas and birthday gifts made out of surplus income and not affecting IHT is that they appear to be have to be made on a regular basis - I think.
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