Differentiation between spending and a gift for IHT

[TeenToTwenties]

When is a gift a gift for IHT purposes and when is it just spending?

So if a grandparent pays school fees, is that just 'spending' or if they die within 7 years would it be counted as part of their estate for IHT purposes?

(Lets assume it isn't out of excess income.)

So if I gift my DC some money towards a house that is clearly a gift.

But if I pay the stamp duty and solicitors fees, is that also a gift, or just spending?

You can make any gift you want to an individual, these are considered to be potentially exempt transfers (PETs), they are taxable if you don’t survive 7 years (and the tax is reduced depending on when you die compared to the date of the gift).

You can then have £3000 annual allowance that you can gift and it falls outside your estate (you can use last year too so possibly £6k). You can make gifts on marriage and you can make small gifts under £150 like birthday presents. Your stamp duty could be paid for with this allowance (depending on the amount).

You can then make regular gifts out of excess income. Where GP are paying school fees it is generally out of excess income. HMRC will look at the loss to your estate to see if you can afford it without reducing your capital or your lifestyle - if your capital is being reduced it is not a gift out of income.

My DM started getting her state pension (she was already retired) and for her this was extra income, she therefore decided to pay £300 a month into each of her GC savings accounts. If she had given them a lump sum from her pension then it would be a PET.

@Majorcutbacksneeded

Thanks, that is a good summary.

However it doesn't to me answer whether things like paying for school fees or stamp duty are gifts or just 'spending'.

They are all gifts (PETs) but there are certain exemptions to the gifts, one of which is making the gift out of excess income (which I suppose you could call spending).

the stamp duty would be hard to justify as a regular gift out of excess income unless you gave the person £10k a year and the stamp duty happened to be £10k.

So is spending not on yourself always a gift?

So grandparents paying school fees?
Paying for dental treatment for your adult child?
Paying for a holiday for your under 18 child?
Paying school fees for your 17 yo?

Do these all come under IHT rules?

https://www.gov.uk/inheritance-tax

have a read of this it may answer your questions

You need to think about how these gifts are being paid.
say your income is £20k a year and your living costs come to £15k a year, you have potentially got £5k excess income which you can use to gift to anyone. But if you’re gifting from savings, that’s not income so falls under IHT rules. If you decide to pay stamp duty thats likely to fall under IHT rules unless your income is well over that amount,

OK. So the answer is yes, all these things count as gifts.

Looking after a child under 18 wouldn’t be considered a gift. Paying for your own children to go to private school isn’t a gift but paying for your grandchildren would be.

Every ‘spending’ that is not on yourself is a gift.

School fees would be considered gifts OP.

Thanks all.