Gifts out of surplus income

Wildparaplanner

Hi,

Does anyone have any good links to information around the gifts out of surplus income rule for IHT? Preferably with details about what definitely does and doesn't qualify. We have a client where we are looking to structure their estate to increase the level of income generated that can qualify as surplus.

Accounts include:
1) Large Inherited beneficiary drawdown plan (died pre 75 so all tax free)
2) Several Loan Trusts (in bonds) which have accumulated 5% allowances
3) GIAs and ISAs
4) BR Schemes
5) Cash in bank
6) Rental flat
7) Two Discounted Gift Trusts in force

Appreciate the help
Thanks
Wild

Wildparaplanner

On a side note - what is there to stop a large beneficiary drawdown pot (say £1,000,000) which is completely tax free, but the owner is now over 75 (therefore passing it on will have income tax consequences on the beneficiary), from just setting up a monthly £100,000 withdrawal for 10 months and calling that "income" and gifting it using the surplus income exemption?

les_cameron

@Wildparaplanner said:
On a side note - what is there to stop a large beneficiary drawdown pot (say £1,000,000) which is completely tax free, but the owner is now over 75 (therefore passing it on will have income tax consequences on the beneficiary), from just setting up a monthly £100,000 withdrawal for 10 months and calling that "income" and gifting it using the surplus income exemption?

Their inability to create a pattern of gifts that lasts at least 3 to 4 years minimum

les_cameron

@Wildparaplanner said:
Hi,

Does anyone have any good links to information around the gifts out of surplus income rule for IHT? Preferably with details about what definitely does and doesn't qualify. We have a client where we are looking to structure their estate to increase the level of income generated that can qualify as surplus.

Accounts include:
1) Large Inherited beneficiary drawdown plan (died pre 75 so all tax free)
2) Several Loan Trusts (in bonds) which have accumulated 5% allowances
3) GIAs and ISAs
4) BR Schemes
5) Cash in bank
6) Rental flat
7) Two Discounted Gift Trusts in force

Appreciate the help
Thanks
Wild

I do.

look what;s on my recommended reading list at the moment!

https://www.mandg.com/wealth/adviser-services/tech-matters?src=301&domain=pruadviser_techinsights

les_cameron

And

1 Yes - according to Abrdn Techzone HMRC confirmed it was income
2 No - capital
3 Interest and Dividend if withdrawn and gifted
4 These are shares so it's capital. If they throw off any divis the divis count
5 Interest only
6 Rental income only
7 No - capital

And it's the net of tax income

Wildparaplanner

Thanks Les.

An adviser has got me thinking again, as they mentioned "natural yield" within the pension wrapper and then gifting that yield away. However, is this even relevant if you are able to just establish a regular fixed income from the pension at any level?

SA96

@Wildparaplanner said:
Thanks Les.

An adviser has got me thinking again, as they mentioned "natural yield" within the pension wrapper and then gifting that yield away. However, is this even relevant if you are able to just establish a regular fixed income from the pension at any level?

I don't believe it is relevant for a pension.

For the purposes of this exemption, natural yield only matters for a GIA or ISA.

les_cameron

@SA96 said:

@Wildparaplanner said:
Thanks Les.

An adviser has got me thinking again, as they mentioned "natural yield" within the pension wrapper and then gifting that yield away. However, is this even relevant if you are able to just establish a regular fixed income from the pension at any level?

I don't believe it is relevant for a pension.

For the purposes of this exemption, natural yield only matters for a GIA or ISA.

What SA96 said.