Definition of 'income' for IHT purposes

I see that one of the exemptions for IHT are payments made out of 'surplus income'. Is this simply the excess of income over expenses, irrespective of what type of income it is? Obviously income includes salary, interest income, pension etc. But I'm also thinking about, for example, of where someone receives a one-off windfall, e.g. from an inheritance or from maybe a lottery win and then wants to pass that on to someone else as they have more than enough funds for themselves. Thanks very much.

Hi,
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Thank you.

Not HMRC...no, inheritance/lottery etc dont count, it has to be regular income, and for gifts out of income to qualify they need to be demonstrated to be regular (for example a standing order every month/3 months from a grandparent to a grandchild would demonstrate the gifts are out of continuous excess income)...an inheritance/lottery win are, by their nature one off CAPITAL events (neither of which is liable to income tax in itself only on income from the capital, so they arent income)

Thanks Clive, I can see that the gift from surplus income should be regular, maybe monthly by standing order for example, but where does the definition that a one-off income source, not related to the profit on a sale of a capital item, should be excluded in the scope of 'income'? IHT14250 it says "Income is not defined in the IHTA84 but should be determined for each year in accordance with normal accountancy rules. It is not necessarily the same as income for income tax purposes. Income is the net income after payment of income tax." Thanks.

HMRC guidance simply says "If you make regular payments You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as: you can afford the payments after meeting your usual living costs you pay from your regular monthly income" The second line appears to preclude "one offs" of any nature as they wouldnt be "regular income"...just on the basis that nothing that is a one off is ever regular. Personally, I think anyone would struggle to argue that any "one off" event (whether capital based lottery/inheritance etc, or income based so distribution of income element from estate or employment bonus or unexpected substantial dividend as part of package on company takeover etc) can be classified as "regular income"...just my opinion

Thanks Clive. I can see that https://www.gov.uk/inheritance-tax/gifts it mentions the phrase you quote. But I can't find this condition in the IHT Manual itself (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14000).The phrase "regular monthly income" appears to refer to the condition that, for any gift to be tax free, regular expenses must already have been covered. If a qualifying gift under this exemption was limited to "regular monthly income", then the phrase "There's no limit to how much you can give tax free" would seem to be ambiguous at least, if not contradictory. Another example might be where someone gets awarded a substantial annual bonus, maybe 50% of their annual salary. It's not part of "regular MONTHLY income", but it is clearly "income" as it comes from the same source as the person's salary, i.e. their overall remuneration from their employer. I guess the definition of the term "income" has never been tested under IHTA84/S21.