We are increasingly asked about ways to mitigate inheritance tax (IHT) and from our discussions with clients it is apparent that the exemption available for Normal Expenditure Out of Income is not widely known.

Any income that is not required to maintain your usual standard of living, and is therefore accumulated, swells your estate and so will attract IHT. By the simple expedient of regularly giving away surplus income IHT will be avoided.

Gifts must be unconditional, made out of income not capital and leave you with sufficient income to maintain your normal standard of living.

A one off payment will not be exempt. The gifts must be regular. However, the first payment will be allowed if you can show a settled intention to give sums over a period of time.

Gifts qualifying for this exemption fall out of the IHT net immediately. It is not necessary for the donor to survive for seven years.

How can we help?

We obviously have accurate records of your income and we maintain a permanent record of transfers of capital. We have produced a pro-forma which you can use to record your household expenditure each year which we can maintain with our other permanent records. If you would like a copy, or any other IHT planning advice, please contact your usual partner.

FOR GENERAL INFORMATION ONLY

Please note that this Memorandum is not intended to give specific technical advice and it should not be construed as doing so. It is designed merely to alert clients to some of the issues. It is not intended to give exhaustive coverage of the topic.

Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.