This perk allows you to give away an unlimited amount of “surplus” income, exempt from IHT, provided that the gifts are regular and do not impact on your normal standard of living.
The big benefit is that there is no need to survive for seven years for it to work.
Sean McCann, a chartered financial planner at NFU Mutual, said that after making the gifts you must be left with enough income to maintain your normal standard of living.
The exemption will not be available if you have made gifts out of income and then have to resort to capital to live on.
The exemption is not given automatically and needs to be claimed after death, Mr McCann said. Keeping records of your income, expenditure and evidence that you intended the gifts to be regular will make it easier for your family to make a claim.
They must prove that the gifts were made out of income and not capital. The point at which accumulated income becomes capital isn’t clear cut, but HMRC guidance suggests that unless there is evidence to the contrary it will consider that income becomes capital after two years.
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