What are the conditions for making a gift?
The gifts must be made from surplus income, which means the donor must be left with enough income to maintain their usual standard of living. To qualify for the exemption, the donor must not dip into their capital to make the gifts. This means they cannot resort to using the capital to pay for their holidays for example, when they would usually use their income for this purpose. Most clients gift cash, but it’s also possible to get assets if you can prove that the gift was bought out of surplus income. The gift must form part of the normal expenditure of the donor, this means you need to prove a regular pattern of giving. One-off gifts or special gifts will not qualify for the exemption.
How do you know if you have surplus income?
In order to work out your surplus income, you must first calculate your income and expenditure. And Henderson Loggie, we can provide a template to help you do this as we know it can be a daunting task.
How regular do the payments need to be?
As I mentioned previously, it’s important to establish a pattern. There’s no specified timing, but this could mean weekly, monthly or annually. A lot of our clients do as part of their annual tax return process.
Does each gift need to be reported to HMRC?
There’s no obligation to report the gift at the time to HMRC. However, good record keeping is important. It can save your family and executors a lot of time and hassle in the long run. We can provide templates to you that includes the essential wording and it allows you to personalise to your family members.
Hopefully, that was a helpful introduction to the significant tax savings that can be achieved by making gifts out of surplus income. If you’d like to get in touch to discuss further or receive any advice, please contact Paige.