When Does Income Become Savings?

[Rev. Green]

If I receive income on Tuesday and give some to my son on Thursday, he never has to pay tax on it even if I die within seven years. If I wait twenty years to give it, it then becomes savings, and he could be liable to tax. How long can I keep income, to give him tax free, before it is classed as savings?

[Guilbert53]

https://www.money.co.uk/guides/how-do-i-gift-money-without-being-taxed.htm

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

[THECORBYLOON]

As a gift is anything of value, why would your son never be liable for the tax?

[Peter Pedant]

er oh
the exemption you are talking about is gift from income
and you have to show it doesnt affect your life style

I have never managed to swing that one
and even in the same tax year
it always seems to be deemed a gift

remember that if you are tranferring something under value you may need to make a capital gains tax declaration

if you are seeking to avoid a large amount of IHT then you need professional advice ( and pay for it) and not ad hoc readers digest stuff from us. - I have recently settled a outstanding tax bil from a mistake in 2010 - tax and penalties £500 - tax lawyers fee £3000
my fault I should have got it right first time
these things are expensive

[fiction-factory]

>How long can I keep income, to give him tax free, before it is classed as savings? As soon as it's in the bank it's savings. If it's under the mattress it's not savings but will forgo interest

I am confused by the statements in your question, Reverend. If you wait 20 years to give it you might pay tax on the savings if it's outside an ISA and above the threshold of £1000 for a basic rate tax payer. if you give it your son on tuesday and and he puts it in the bank on Thursday he would pay interest if his savings income exceeds £1000 if a basic rate tax payer.
If you are referring to IHT it's paid by the estate and is only a factor if the estate is over something like £650000 for a married couple, but there are so many exemptions and it's unlikely past gifts would b picked up anyway unless they were substantial.

[fiction-factory]

Apart from the 7 year reference, PP, I can't see this being an IHT question. It seems there is some confusion in Rev's mind about the definition and tax treatment of savings

[fiction-factory]

Ah, reading between the lines I think you are right, PP- it's about giving gifts from income that don't affect your lifestyle being free from possible IHT. It's always seemed an odd distinction and odd exemption to me. In my experience though too many people worry about IHT when in practice it won't be a factor when they die

[ubasses]

You can give him up to £3000 each year (as long as you are not giving anyone else any gifts over £250)

[fiction-factory]

I'm not sure it's right to say "he could be liable to tax" in relation to a gift. My understanding is that unless the gift exceeds the IHT threshold it's the estate not the gift recipient that pays any IHT tax anyway when you die (although of course if the recipent is also the sole benficiary then it's effectively the recipent that pays the tax)

[Rev. Green]

Thanks everyone. The question was whether I could transfer my vast fortune to my son as it was all income at one time or other. The answer given in Guilbert's links is "no", income has to be transfered regularly to avoid inheritance tax.

[Peter Pedant]

The IHT manual on gift out of income starts here

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

reading it will make you wonder why tax men dont shoot themselves on a regualr basis

[ you didnt really think you could transfer your vast fortune (capital) to your heir by saying - oo it was income once! and pay no tax ?
you need to make a will under supervision you do]