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Where Taxpayers and Advisers Meet

IHT Calculator/Gifts from Income

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm
IHT Calculator/Gifts from Income

Postby zaxtab » Mon Jul 08, 2024 8:02 pm

I’ve been testing the Gov.IHT Calculator from an interest point of view,and what my case might be upon my death.I have a wife and my Will states all my assets go to my wife as surviving spouse.On the information gathered from the calculation it would appear I would have no IHT to pay, I have included Gifts I have made in the last 7years which is as requested but I can’t see from the information required a section where I could include Gifts from Income,….. how do I insert this into the calculator?…albeit it will be free from IHT as it follows the rules to be IHT free?
I know there is a Gov. form IHT400 for this …but how does it get included into the calculator

AGoodman
Posts:1797
Joined:Fri May 16, 2014 3:47 pm

Re: IHT Calculator/Gifts from Income

Postby AGoodman » Tue Jul 09, 2024 11:26 am

I doubt the calculator covers it. If the gifts are exempt then they are irrelevant anyway.

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm

Re: IHT Calculator/Gifts from Income

Postby zaxtab » Tue Jul 09, 2024 2:50 pm

I doubt the calculator covers it. If the gifts are exempt then they are irrelevant anyway.

The basis for the form suggesting no IHT is due presumably is because the Gift was less than NRB which suits me fine,but I thought HMRC would want to see the calculations that suggest that is so.
And that would also be the case with Gifts from Income as illustrated on form IHT403..

Even if there are Gifts from Income by the deceased I presume it is IHT205 that would need to be completed not IHT400…

AGoodman
Posts:1797
Joined:Fri May 16, 2014 3:47 pm

Re: IHT Calculator/Gifts from Income

Postby AGoodman » Wed Jul 10, 2024 10:30 am

do you mean this calculator? https://www.gov.uk/valuing-estate-of-someone-who-died/estimate-estate-value

what are you trying to find out? the potential tax liability or whether the estate would be excepted?

If working out whether an estate is excepted, gifts made out of income have to be treated as chargeable transfers (i.e. not exempt)

Para 4(7A) Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (SI 2004/2543) (as amended in 2011)

I haven't worked through the calculator but HMRCs guidance is not always correct.

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm

Re: IHT Calculator/Gifts from Income

Postby zaxtab » Wed Jul 10, 2024 4:16 pm

Hi Thanks for reply…

I am about to make a gift out of income for my son and I’m aware of keeping records and form IHT403.I have also used the HMRC calculator,suggesting I have no IHT to consider, but it doesn’t make any reference to Gifts from Income!

I would like to know when and where would my executors use IHT 403, albeit the gift would be free of IHT,since from surplus income,my surviving spouse being one of the executors…

AGoodman
Posts:1797
Joined:Fri May 16, 2014 3:47 pm

Re: IHT Calculator/Gifts from Income

Postby AGoodman » Wed Jul 10, 2024 5:24 pm

Executors have to file IHT400 unless the estate is an excepted estate. The rules defining excepted estates are set out in the statutory instrument I linked to above and summarised here https://www.gov.uk/valuing-estate-of-someone-who-died/check-type-of-estate

If your executors have to file IHT400 they will have to file IHT403 in relation to any gifts made in the prior 7 years.

When working out if your estate was excepted or not, your executors would have to treat the gifts as normal gifts - i.e. not exempt. If that took the estate out of the excepted estate rules, they would need to file an IHT400, IHT403 to claim the exemption.

The policy reason is basically that if an estate would be taxable if not for the exemption for gifts out of income, HMRC want you to complete the full account and claim the exemption so they can scrutinise it.

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm

Re: IHT Calculator/Gifts from Income

Postby zaxtab » Wed Jul 10, 2024 5:38 pm

I think my estate is an excepted estate…but because I will have made gifts out of income does mean my execs. would need to complete IHT 400,..but if no gifts from income then IHT 205 can be used.
….. I believe this is what you are saying?

AK2021
Posts:9
Joined:Fri Dec 31, 2021 2:52 pm

Re: IHT Calculator/Gifts from Income

Postby AK2021 » Fri Jul 12, 2024 4:12 pm

Beware "regular gifts from income" , its not as easy to claim as you might think.
I have been the executor for two family estates recently, both made regular gifts from income.
The IHT403 form to claim relief for "Gifts made as part of normal expenditure out of income" requires a scary amount of detail about every pound spent and earned in each of the last seven years before death.
Salary/Pensions/Interest (including PEPs and ISAs)/Investments/Rents/Annuities (income element)/Other/Minus Income Tax paid - to get to Net income
Mortgages/Insurance/Household bills/Council Tax/Travelling costs/Entertainment/Holidays/Nursing home fees/Other - to get to Total expenditure
This is to calculate that the gifts are out of normal expenditure and not capital.
On both occasions I couldn't get (didn't have time to get) the information together, so ignored it and put them all down as normal gifts.
This resulted in the net estate being bigger than it should be, but in my case still below the IHT payable threshold.
I imagine the level of detail required is almost impossible to provide for most estates, and so claiming "gifts from income" relief should not be planned for unless you're leaving a forensic account of your finances along with your will.

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm

Re: IHT Calculator/Gifts from Income

Postby zaxtab » Sat Jul 13, 2024 9:35 am

Thank you for warning AK2021..

But if I decided to claim this relief..where on Form IHT205 is it referred to?

zaxtab
Posts:34
Joined:Thu Jul 09, 2020 9:08 pm

Re: IHT Calculator/Gifts from Income

Postby zaxtab » Wed Jul 17, 2024 12:42 pm

As an alternative to the Income and Expenditure heading given on form IHT 403,…eg. Salary,Pensions, Insurance,Travel etc,…would HMRC accept Income and Expenditure (Credit and Debit) values downloaded from Bank Accoun?…


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