It ain’t what you do, it’s the way that you do it..
That’s what gets results! Certainly it’s true in the world of Inheritance Tax (IHT) planning where HMRC typically confiscates 40% of everything above £1m for married couples, and above £500,000 for individuals
If you’re comfortable with that, off you go, take the dog for a walk. If you’re not, it’s likely easy to fix and it’s all legal, legitimate and straightforward
IHT Exemptions are derisory, but it makes sense to use them. In addition, married couples who can afford it can give away, tax-free, up to £662,000 every 7 years
Interestingly, there are also rules that may allow you to make unlimited gifts, without any tax consequences, and those gifts are outside of your estate immediately
The ‘seven year rule’ does not apply to gifts made out of excess income, but there are strict rules. They must be part of ‘normal expenditure’, which means there should be regularity to the payments. Gifts must be from income, not capital
Gifts ‘should not diminish your standard of living’ which means you should be able to afford them once you have paid your normal outgoings
Gifts need to form part of a pattern and recur over three or four years. A single gift might qualify if there is strong evidence it was to be the first of a series
Beware, HMRC typically takes the view that income becomes capital after two years
Your executors will need strong evidence to claim the exemption so you must keep detailed records of your gifts, income and outgoings for the relevant years
They will need to demonstrate that your net income, minus total expenditure, did not impact your standard of living, so provide them with all the ammunition they need..
Our team of Chartered Tax Advisors will review your IHT planning for you. Experience the Power of a FREE Review Hour here.
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