Gifts to family within IHT rules

Basically i believe we (With Wife) have all the IHT bases covered.

ie *Tenants in common *separate wills (mirrored) *estate values below IHT threshhold assuming we survive another 1 year out of 7 since substantial prior gifting.

Now i want to give 6 school age grandchildren a regular monthly sum into their own savings accounts.

I believe this will not affect our IHT threshholds but are there any related issues to consider.

eg by gifting the money it serves to prevent the estate climbing (over time ) above the threshold???

eg the sum per child is below their personal tax allowance (annually) - but collectively it would exceed a single personal allowance??

et al et al

regards R

Reply to
Ramon A
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Their personal allowances are irrelevant because gifts are not income and therefore are not taxed as income.

If you want these monthly gifts to escape counting towards your IHT taxable estate they must be below *your* small gift exemption limit. This is £3000 per year per donor, so between the two of you you can give each of the 6 grandchildren £1000 per tax year.

You can give more, of course, but the excess will count as part of your estate. You can also give more if it's out of income rather than savings, provided the reduction does not adversely affect your standard of living. In other words you can give away only that much of your income as would otherwise have flown into your savings. You can't give away all your income and live off savings instead, that would count as givign away savings.

Reply to
Ronald Raygun

Thanks for that.

your last para encapsulated the situation almost exactly. it would be out of income because being newly 65 years old my fully vested oap is effectively surplus to our/my prior incomes from early retirement employer pensions and would "fly" to savings otherwise. the sums involved are slightly higher than suggested but could be easily trimmed.

two supplementary questions then?

1 If we spend savings and other income in such a way as to improve our property - buy ourselves luxuries - go on extra hols - mend the roof - upgrade the pushbike etc etc above our normal level of expenditure and the end result is that the IHT threshholds remain comfortably out of reach and our standard of living is not degraded how would the "IHT taxman" view the extras we spend upon ourselves.??

2 how must we document that actions taken to keep the estate(s) below the threshholds were intended to be legal??. after all - you cant explain it to them when you are dead!!

rds R

Reply to
Ramon A

He would be unconcerned. It's not what you spend on yourselves that matters, an interest would be taken in any money which appears to have been given away as gifts instead of as part of the estate.

The rules are clear. You can each give away £3k of savings each year, plus such amounts from income as would not reduce your standard of living.

But you can't tap your savings to make up for any drop in standard of living that would otherwise result from giving away too much income. But that doesn't mean you can't tap savings to increase it.

Clearly if you have a new source of income this could in principle be used in its entirety to fund an outgoing stream of gifts. It would not reduce your savings, it would simply fail to increase them. :-)

You can explain it to whomever you have chosen to be your executors. They're the ones who will have to compile your estate inventory and tax forms and answer the questions of what gifts have been made in the 7 years prior to death.

Presumably your wills name each other plus at least one of your main heirs as joint executors.

Reply to
Ronald Raygun

Improving the property is likely to raise its value, which may then exceed the IHT nil rate band. This is not affecting the 'IHT thresholds' as you infer in your post.

Rob Graham

Reply to
Rob Graham

Improving the property is likely to raise its value by less than you spend on the improvements. Therefore it's possible for the "before" value of house, plus the "before" level of savings, to be just over the threshold, and the "after" house value plus the remaining savings to add up to just under it.

Reply to
Ronald Raygun

In message , Ramon A writes

Others have given jolly good replies.

I am just wondering about the severed tenancy and the mirrored wills. On the first to die, what happens to the deceased's share of the house?

Reply to
john boyle

"Ronald Raygun" said

So what that seems to say is that the WHOLE of a new source of income PLUS

3k of savings could be gifted annually per donor?

Thinking about it then! That could be a huge amount of money? As long as the savings are not degraded by more than the allowance and ones prior standard of living is maintained.

thanks for the various inputs!

Now a logical extended query.

Suppose one wanted to make generous gifts out of income that would otherwise degrade ones standard of living? Is it possible, then, to deliberately lower ones standard of living for a period of time BEFORE starting to give away excess income? How long might that period of time be?? 6 months?? 1 year?, 2 years??.

I mean - after all - one could get tired of a certain (higher) standard of living, and prefer it to be lower, couldn't one?

this is a serious question - by the way!!

Ramon

Reply to
Ramon A

It's a grey area, but the gifts out of income need to be "regular", i.e. take place each year for several years in a row. They'll look back, probably 7 years or so, and analyse your spending patterns to satisfy themselves that your lifestyle spending hasn't gone down by an amount roughly corresponding to gifts having gone up.

One could, Mr Good, but thousands wouldn't.

Reply to
Ronald Raygun

If you document your actions for IHT purposes, then it will look like an IHT avoidance scheme, and will probably fail. You should remember that you aren't doing this to avoid/evade IHT. You are doing it because that's what you consider a normal thing to do.

Reply to
Jonathan Bryce

Our understanding is - the first deceased's estate is held in a discretionary will trust for the beneficiaries. Trustees are the surviving spouse plus one benificiary. A lot depends upon a clear belief that the benificiaries will not try to liquidate their interest in the will until the second spouse dies. Nothing is certain but the benefits to the benificiaries are clearly defined by reduced or nil IHT .

Ramon

I retrieved the following example of benefits from a google search on "tenants in common". there are many other examples

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QUOTE But if you are tenants in common, you each own an individual share of the property - and can decide who gets your share when you die. Both the husband and wife can therefore make use of their annual IHT allowance.

If a couple lived in a property worth 400,000 and were tenants in common, each would have a share worth 200,000. Unless they both had 55,000 of other assets, neither estate would be liable for IHT.

If your home is more valuable, you can set up a discretionary will trust. Under this arrangement, the assets of whichever of you dies first pass to the trust, not to your spouse.

Your spouse can still gain access to the funds held in the trust, but because they do not form part of his or her estate they will not be liable to IHT.

For example, if a married couple lived in a house worth 510,000, half of it would be liable for IHT if they owned the property as joint tenants.

If, however, they were tenants in common and each had a 50% share they could set up a discretionary will trust.

If, say, the husband died, his 255,000 share would pass to the trust and not to his wife. Therefore her estate would still only be valued at

255,000.

Under the terms of the trust she would be able to live in the property. On her death it would pass to the children, or whoever was set to inherit the estate. Her share of the house would be treated as a separate inheritance from her husband's share that is held in the trust.

Warburton says: "It is a very simple clause to include, but I have seen it missed out of a number of wills."

Cohabiting couples do not enjoy these IHT benefits. Even if they own the home jointly, they are regarded as single people and no assets can be passed on free of tax.

If an unmarried couple owned a property worth 510,000 and one of them died, the survivor would face an IHT bill of 102,000. UNQUOTE

Reply to
Ramon A

I don't think this is correct. IHT is not charged on 'regular gifts out of income'. You just have to show they form part of your normal pattern of spending and that you are not realising capital in order to make them and that they are not adversly affecting you standard of living. Of course, to make use of this you have to have a higher income than your normal expenditure.

Separately you can give a total of 3000 each year and you CAN maket hat from capital.

Robert

Reply to
Robert Laws

Indeed it is not the whole truth, but that's only because you snipped the next paragraph, in which I pointed out the exact same "gifts out of income" stuff which you re-iterate here.

Quite so.

The interesting question remains of what the position would be if the causation were reversed, i.e. if it were not the out-of-income gifts which reduced your normal lifestyle expenditure, but if an entirely independent choice of lifestyle moderation had the side-effect of freeing up spare income, which then became available to give away.

Reply to
Ronald Raygun

In message , Ramon A writes

This is the arrangement that I suspected was the case and which was causing my anxiety for you. Would it not be better for undefined assets up to the value of the Nil Rate Band to be passed to the trust with the actual assets being left to the survivor with the trust being allowed to accept an IOU in lieu?. It is important to note that in this arrangement the assets do NOT pass into the trust and the trust does NOT lend anything to the survivor. It only ever holds an IOU as its one and only asset. The survivor owns the house and other assets absolutely and the behaviour of the trustees is irrelevant. It also avoids complications when the house is sold during the survivors lifetime and other complications should trustees/beneficiaries die, divorce, become bankrupt, etc., etc.,

I think your attached quote was once valid but now leaves itself open to challenge.

Reply to
john boyle

"john boyle" said>

thanks for the explanation, i will review how your suggestion compares to our existing situation and expected family behaviour(s) and circumstances. Our current status has been set up for over 12 years, so if the legal "thinking" and "interpretation" has evolved a bit then it may be time to get the will writers busy again.

I assume however that if we believe that we "know" our family then keeping it simple also has it's own merit?

R
Reply to
Ramon A

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