A REGULAR GIFT CAN LEAD TO BIG SAVINGS Posted at: February 5, 2018 Posted in: News Normal expenditure out of income is a way of ensuring that your loved ones benefit financially from your success. And the seven-year IHT rule related to the transfer of assets doesn’t apply, explains Mark Sheen. You’re probably already aware that inheritance tax is a hefty 40% on estates valued at over £325,000. People looking for maximum tax efficiency can always choose to give assets away before their death, but they need to survive for seven years in order for the sums to be taken out of the IHT calculation. There’s another problem too. If you give away a big gift, there’s always the danger you may come to regret it. After all, unforeseen expenses and care bills can arise, which you never originally anticipated. Another option you may want to consider is to transfer money as ‘normal expenditure out of income’. As the name implies, these are gifts made out of your regular surplus income and you must be able to demonstrate a pattern or commitment. An example might be agreeing to give a grandchild a certain sum each Christmas or on their birthday, signalled by writing them a short note stating your intention. The great thing about the normal expenditure out of income is that the seven-year rule doesn’t apply. All that’s required is proper record keeping and the ability to prove that your gift qualifies under the rules. There’s no upper limit and if you don’t have enough income in one year to cover the gift, HMRC are prepared to accept that you can aggregate the sums over more than one year. Another bonus is that if you make a payment of, say, £10k, but only £7k is actually surplus income, you’ll still get the tax relief on the proportion of the sum which falls within the rules. If you haven’t already discussed this option with your accountant, it’s something you might want to raise as part of a meeting on tax planning.