"Ronald Raygun" wrote
I think that it's a bit silly to try to distinguish between using savings or income for upholding your "standard of living"...
Isn't someone's standard of living / lifestyle, actually a function of *both* their income & their savings?
Silly it may be, but rules often are. The bottom line is that what IHT targets is amassed wealth, including accumulated unspent income.
Well, I guess your standard of living / lifestyle is basically "what you spend", and of course you can just as easily spend income as it comes in as you can draw down savings, and the same is true of how you can fund gifts.
The level of one's savings goes up or down depending on whether one's income (plus gifts received) exceeds one's expenditure (on lifestyle and on gifts made) or not.
The presumption with the "gifts out of income" exemption appears to be that where one's income stream exceeds one's lifestyle spending needs, and where therefore one's savings would show an upward-moving trend, that one should be able to give away as much spare income IHT-free as would reduce the long-term savings gradient to zero, but not beyond zero, because at that point gifts would clearly be coming out of savings.
The special situation where one's lifestyle is already funded from a negative savings gradient (or part-funded with an income stream which by itself would be insufficient), leads us into a bit of a grey area, and unfortunately the rules seem to be worded in a rather woolly fashion, since they don't appear to refer explicitly to savings gradients. They refer to adversely affected lifestyle or something like that. What that means is that you can give away as much income as you like provided it doesn't cause you to spend less on your lifestyle. In your specific example, if you acquire an increase in income, but do not spend more on yourself (even though you are continuing to erode your savings), it seems reasonable to assume that the new income can be given away in its entirety, provided that you maintain your lifestyle spending at its pre-existing level and that in order to do so you do not need to increase the rate at which you're drawing down your savings.
Wouldn't you agree?
"Ronald Raygun" wrote
Ermmm - after you've received income, *all* of it is then (immediately) "accumulated unspent income". Any that isn't is, well, err, hasn't been received yet!
"Ronald Raygun" wrote
What if you *always* match your "lifestyle spending" to your (net) "income stream"? [Ie your lifestyle is "live within your means".]
In other words, you only ever "spend" what income you have (after tax, ** & gifts ** are made!).
In that scenario, making more gifts & living off the lower net income would be "OK" -- because your "lifestyle spending" is automatically lower as a result, by definition.
"Ronald Raygun" wrote
Ah, but "less than" *what* ? ...
"Ronald Raygun" wrote
Why is it your "pre-existing level" that is relevant? You could easily increase your "lifestyle spending" (still being funded by drawing on savings) a short time *before* the new income appears... Does that get around it? ;-)
"Ronald Raygun" wrote
Like I said, I think it's a silly distinction. Any strict application of the rule is bound to create inconsistencies.
Not least because your "amassed wealth" can create both "income" and "gains" - and even those "gains" can be an average between some "losses" and other (super-) "gains"...
Do you include gains when you consider "income"? If so, do you include only those assets producing gains (ie ignore losses), or do you only consider your "average" gains (ie offset losses against gains)?
If gains are not included at all when considering your "income stream" against lifestyle spending, then you could increase your "income" (even just temporarily) by moving more heavily into assets that create income rather than gains.
The "Ermmm" does not compute. Having received and accumulated this income, you may yet spend some of it (or indeed give some of it away), and so it will not then form part of your amassed wealth. Not all amassed wealth derives from income.
Then your laudable frugality will, alas, not be rewarded by the IHT man.
Then your lifestyle is "suffering" as a result if making gifts, and therefore the gifts will not be IHT exempt.
Less than before. Less than necessary to support the style to which you have become accustomed.
Against what else would you measure an adverse effect?
Perhaps so, but the rule-makers seem happy to live with them.
Good question.
If so, it should be the average, because income would be treated similarly in that "income" would be taken to mean net income after deduction of allowable expenses.
For the reason that assets can be switched, it would make sense to treat (realised) gains as income here, but there is the caveat that there may be a CGT penalty involved in realising gains. Where seriously large amounts of value are involved, you'd be trading CGT against IHT, so this strategy would only be of use to those who are asset-rich but income-poor (so that CGT would not be paid at the higher rate).
Looks like you've given up on justifying why a bank reconciliation is unnecessary!
"Peter Saxton" wrote
Yep, at around about the time when *you* gave up on justifying why it *is* necessary!
I explained that it is necessary to ensure that it explains the difference between the cash book and the bank statement which is third party confirmation.
You have not explained why it is not necessary yet you keep being untruthful. You have already said you would come up with a list of what would replace a bank reconciliation "when you have time". It would appear that you are wrong and instead of admitting it you are trying to pass the buck. The mark of a scoundrel.
"Peter Saxton" wrote
But as I explained, it is not always *necessary* to do that!
"Peter Saxton" wrote
Eh? Reference? [ Are you after a fight? :-) ]
"Peter Saxton" wrote
Yes - I then asked you to provide a purpose for which a bank reconciliation *is* actually necessary, to see if I can supply one/more alternative check(s) to satisfy that purpose, and you appear not to be able to give any valid ones.
"Peter Saxton" wrote
Not at all - simply showing that there are, in fact, *no* purposes for which a bank reconciliation is *necessary*. At least, you haven't been able to come up with any!
"Peter Saxton" wrote
Strong words! Pistols at dawn, sir?
When did you explain why it is not always necessary?
By saying I didn't explain why it was necessary.
I have done, see above.
See above.
Not with you. You'd come along with a hand grenade as well!
Also, sometimes most useful of all, regular gifts out of income do not count for IHT. So if your income is more than your outgoings you can give all of that surpluss away if you wish. But it must forma regular pattern of expenditure.
Robert
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