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IHT exemption for gifts out of income
30/06/2020

It is possible for wealthier taxpayers to take advantage of the IHT exemption for gifts and payments that are paid as normal expenditure out of income. This is a very flexible exemption from IHT as there are no specific requirements, for example, making fixed, regular gifts to the same person. With proper planning this can be a particularly useful tool and could include helping grandparents pay school fees for their grandchildren.

However, careful consideration has to be given to ensure that these payments form part of the transferor’s normal expenditure and is made out of income and not out of capital. The person gifting the money must also ensure that they are left with enough money to maintain their normal standard of living. A gift must meet all of the conditions to qualify for the exemption and must not fall within any of the exceptions.

This relief is separate to the annual Inheritance Tax exemption of £3,000 for gifts. This exemption can also be carried forward to the following tax year if not used, to make a maximum gift of £6,000. Individuals can also give as many gifts of up to £250 per person as they want during the tax year but only if they have not used another exemption with the same person. There are also special allowances for gifts made at a wedding or civil ceremony.


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