Gifts out of income - state pension deferral lump sum

I have a client who deferred his SP from 31/08/2009 to 10/04/2016 and elected to receive a lump sum.

The net amount of £27,908.59 was credited to his account 24/08/16 and he subsequently gifted £9,000 to each of his 3 children on 22/11/2016.

He deems these as gifts out of surplus income on the basis 'Since it had been taxed as income I assumed that the gifts could be considered as gifts out of excess income.
It was certainly income and it was certainly excess income compared to my normal income’

I’m not clear from IHTM14250 whether this would be viewed as income or accumulated income and therefore could be considered as capital?

Thank you in advance for your advice.

Amanda Cook
Investec W&I

Hi Amanda,

I would suggest HMRC would dispute the 3 gifts fell within s.21.

The judge’s view (Lightman J) - ‘connotes expenditure which at the time it took place accorded with the settled pattern of expenditure adopted by the transferor.’

The key word to claim s.21 is pattern. See 1. IHTM14244

How not to claim s.21 - here - Nadin v IRC

Richard Bishop
PFEP

Even if treated as “income” for income tax purposes in the year the payments were made, the lump sum may not be “income” for the purpose of s.21 IHTA 1984.

For example, whilst the withdrawal from life bonds is treated as income for income tax purposes, I believe it is not treated as income for the purposes of s. 21.

I recall HMRC may now look to be notified of any gifts purported to be made out of excess income, and perhaps it would be appropriate to report the facts and seek clearance now.

Paul Saunders FCIB TEP

Independent Trust Consultant

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Hi Paul,

It would seem not. I asked the question on their web chat and the adviser said they cannot give advice and can only provide help if there has been a death or an event which needs reporting to HMRC. He referred me back to the manual.

Amanda Cook
Investec W&I

Hi Richard,

He has a pattern of gifting out of income, apologies for not clarifying that in the original post.

Amanda Cook
Investec W&I