The basic point of the rule is that people with surplus income, i.e. more income than they spend, can give some of the surplus away rather than accumulating even more capital. If you eat into capital to support your spending you clearly don't have a surplus, you have a deficit ...

I have always treated capital expenditures that are not "regular" spending as just that - capital. So,
when purchasing a new car for cash that was capital expenditure, but if I would have leased it or bought on hire-purchase, that would have meant regular payments over years so I would have listed these payments as normal expenditure.

The gifts of up to £3,000 per year are in addition to gifts from surplus income, as far as I know.

Incidentally, my spreadsheet for income/expenditure is more detailed than HMRC - I did it myself years before I saw the example in IHT403; I have also always given less every year than the surplus, so if there would be any HMRC queries after my death, my executers would have some leeway in dealing with the issues.

I am still trying to get a definite reply from HMRC on the question of SIPP drawdown - whether it is all considered as income or whether some of it would be considered a return of capital. (The employee I spoke to after a considerable wait told me that drawdown is income, but when I asked if some of the drawdown would be considered return of capital, he seemed very uncertain).

Does anyone know if withdrawing the full 25% tax-free lump sum when moving a SIPP into drawdown counts as income or as repayment of capital for the purpose of gifting?

As I mentioned in another thread, I think that unless HMRC issues much more detailed guidance (and probably a few court decisions come up) this will be a mess for years to come!

The rules are not new, as you say, but the issue of using income from SIPPs seems to be new - after all, there was no reason to gift moneys from SIPPs when there was no IHT applied to them.

As I have found out, HMRC guidance does not mention how Pension Drawdown or UFPLS are treated (pure income or mixture of income & return of capital) for the purpose of gifting from income.
And my attempts to get a more precise advice from HMRC has not succeeded.

If they do issue clearer guidance it will make our lives easier, but I'm not holding my breath.

On the PET issue, I decided not to wait and gifted £250K from my GIA recently, and have taken out a 7-year term life insurance for £100K, payable in trust to my beneficiary, to cover IHT in case I don't survive the seven years.

Annuities - according to HMRC's IHT403 have both a capital and an income element.
These elements seems to be variable:

"The capital element in a purchased life annuity is determined by reference to the amount or value of the payments made or other consideration given for the grant of the annuity. The capital element is fixed when the annuity is purchased and the older the annuitant is, the higher will be the capital element."

(From information by a tax consulting firm - I do not vouch for the veracity of this statement, but it fits in with others I have seen).

I tend to agree with you that getting clear information from HMRC is unlikely, to say the least.

I think you are correct but I was planning to call HL later today regarding my SIPP and let you know.

EDIT:

According to HL, annuities bought with funds from pensions (SIPPs) are treated as purely income, with no capital element, so are taxed as income at our marginal rate.
So presumably they would be all income for the purpose of Gifts from Surplus Income.

If anyone has information to the contrary please let us know!