Unearned income (gift)

Why not?

Yes, but this is only going to matter within the year before they die. It is of advantage to give £6k the first time around (*), but thereafter it is better to keep going at £3k a year, in case you die before you pay the next £6k, as you would then have missed one opportunity to pay £3k.

(*) I'm assuming, of course, that this doesn't involve delaying a decision to give, but that once a decision to give regularly has been made, it's better to make use of the carry-forward facility than not.

I have recently had to deal with my late mothers estate....my mother used to regularly gift, some exempt, some higher than the exempt allowance but the solicitor wanted to see a detailed list of the amounts and destination of the gifts in terms of cheque numbers. When my father was alive he used to give me 3k via cheque and my mother gave my sister a cheque for 3k. Its a case if push comes to shove for the inland revenue of being able to prove the source of the funds not being from the same person. Regarding proving gifts out of income, we looked at that too, however all it takes is one year when she had new double glazing fitted for her outgoings (with regular gifts) to exceed her income for that exemption to be blown out of the water for that tax year!

I think you must be mistaken. Just because outgoings exceed income does not preclude the usual gifts qualifying as "out of income". After all, unusual outgoings can be deemed to be paid from savings.

You don't install DG every year, so you don't usually pay for it out of income. Most people either take a loan, to be paid off over several years (in which case e.g. a fifth of the total payable would count as coming from each of 5 years' income), or else they will pay for it out of savings (in which case none of the cost should count as coming from any year's income).

Could you not have taken that view in your mother's case?

Yes. In addition, one of the tests for the gift being out of income is that the making of the gift is not to the detriment of your usual standard of living. So if they can afford Double glazing as well as the gift then that test seems to have been passed.

In my case the gift is from interest on bonds. Their income is more than catered for from pensions. Does that mean its classed as gifts from income?

Not necessarily. To qualify as "gifts from income" it is not enough for the money simply physically to arise from a source of income, they must be regular and not reduce the donor's standard of living.

So if in the past they've been spending this money on wild parties, which they're now cutting back on in order to give the money to a more deserving cause (you), they would not qualify because their SoL is being reduced.

On the other hand, if they wild parties have stopped because they've decided to act their age, and the money, even if not being given to you, would not get spent and would instead just flow into savings, then they would qualify.

Does anyone have any *practical* experience of this?

As my SO won't let me pocket the odd 20-quid notes given to us "for $OFFSPRING" and offset them against /our/ payments into a CTF, should I run a passbook savings a/c in their name and note 'GPB20 cash from $GREAT_UNCLE' in it each time?

TIA, Alan

Note that interest over £100, iirc, which at today interest rates means £2k of capital in the offspring's account. That'd be a lot of £20 notes (well 100!).

It's not just £2k of capital, but £2k of capital which came from parents. So if the account is likely *ever* to exceed £2k before the child ceases being a child (at 18, presumably), it is worth keeping a note of where it has all come from.

It's not enough merely to note how much has come from parents, but it helps to note where *everything* has come from, so that questions can be answered without too much hesitation.

What's the status of pocket money, by the way? If it is "earned" for "chores", does it count as a parental gift, or as the child's unfettered own money? Are there "going rate" tables which say that so much is fine for earning, and the rest must be treated as a gift? Then what happens if the gifts all get spent on sweeties and only the earnings go into the savings account?

We just never put any money into our children's accounts. Just be generous to nephews and nieces and hope their parents are generous towards your kids :-)

If it's "earnings" then you'd have to comply with employment legislation, in particular the employment of children parts.

Not necessarily. They could be self-employed.

"Andy Pandy" wrote

Can the children not be *self-employed* ?

I suppose they'd need to register, and to apply for C2NI exception.

Wouldn't they come under IR35 if they only did work for one "customer"?

I don't think this is a line HMRC would take in cases with earnings below the NI threshold, i.e. where to do so would result in no additional tax becoming due.

In any case, children could pool jobs with their friends, thereby magically both acquiring additional clients and also the ability to pass the "can get someone else to do the work" test.

Kids are pretty clued up these days, you know.

"Andy Pandy" wrote

Not necessarily ... I know hundreds of people who only do work for one customer, and yet don't come under IR35. At least one has even been through an IR "enquiry", and IR35 wasn't applied!

...and form a Delaware LLC/ BVI ltd holding company...

... to outsource mowing the lawn and washing the car to kids in India ;-)

(q.v the anecdote about a programmer on Slashdot who outsourced his own job to India <