Re: Gifts out of Income for IHT Purposes.
Posted: February 5th, 2024, 5:03 pm
SalvorHardin wrote:Lootman wrote:
Does that apply to gifts from income?
So for example if I give you £5,000 from income but then say to you "Don't spend it as I may need it back" then am I essentially reserving a benefit?
If you didn't need the money then it is a gift from income. That you've imposed conditions is a very strong indicator that it isn't a gift out of income. Bear in mind that a gift is the voluntary transfer of property where the recipient receives all of the property rights (in particular the right to exclude, so the gift giver has no right to use the property once it has been gifted).
HMRC probably wouldn't consider this to be a gift in the first place because you are imposing conditions which severely restrict how they can spend it. Now how the Revenue could prove it is another matter altogether (which is why many gifts are made in cash, or in the form of goods, which IMHO is one of the reasons why the state is increasingly favouring the elimation of cash).
There are a few exceptions to the restrictions applying to the gift, such as gifting property but as part of the gift you impose a restriction on how they can use it but you do not retain any property rights in the gift (so it is a gift). For example, gifting land but adding a covenant which means that the land can only be used for farming.
The main type of gift with reservation that I used to encounter was where the parents had gifted the house to their children but then continued to live in it rent-free. In order to make it a gift the parents would either have to move out or pay market rent (and be treated as a tenant). Lots of solicitors have articles on this, here's one linked below:
https://www.gnlaw.co.uk/news/gift-with-reservation-of-benefit-iht/
Another thing to watch out for when making gifts is if you get something back in return, because this could turn the arrangement into a contract.
As to the valuation of chattels, the Revenue is really interested in valuable individual items such as jewelry, classic cars and high-priced antiques (items which might appear on Antiques Roadshow but not on Bargain Hunt). In my experience they really aren't all that bothered about getting accurate valuations of televison sets, carpets, non-antique furniture and most other household items and will happily accept broad brush estimates. And there is always plenty of scope for experts to disagree about the valuation of items, and to justify a much lower valuation if it is for probate purposes (what value to put on a pedigree cat, for example).
Whilst jewelry does often transfer down generations outwith estates those who so indulge need to be careful that none of it is individually listed in that pesky schedule to the house contents insurance policy- so lots of items at say £2.5k/£5k per item might be the way to go, effectively a lot of Etsy purchases.