When available, any gifts made are immediately considered to be outside of the donor's own estate. There is no upper limit to the exemption if the conditions are met and can apply to lifetime gifts to either individuals or trustees.
The exemption, which is part of the Inheritance Tax Act 1984 and part of section 21 is available if:
It was made as part of the normal expenditure of the transferor
It was made out of their income (comparing one year to another)
After the transfer was made, the transferor has sufficient income to maintain their usual standard of living
HMRC's own Inheritance Tax Manual states that 'normal' includes terms such as 'standard', 'regular', 'typical', 'habitual' and 'usual'. There is no minimum period for gifts, nor is there a number that can be made. HMRC considers a three to four year period to be considered normal.
Records must be maintained for income, spending patterns and gifts made so this evidence could be provided to HMRC should they query the gifts in the seven years preceding death.
When using the Normal Expenditure Out Of Income Exemption, care should be taken to determine the extent of gifts an individual wishes to make are within the scope of the exemption.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the Normal Expenditure Out Of Income Exemption, it may be a great idea to give me a call on 01908 774323 and let's see how I can help.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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