Legal News | 3.12.20

Has lockdown left you with more cash locked up?

Lockdown has put an end to many things, including our spending habits. Many clients are aware that they can give away up to £3,000 per tax year with no Inheritance Tax (“IHT”) consequences. However, fewer appreciate a further exemption that can be used as a successful IHT mitigation planning tool; making gifts out of surplus income. With spending habits curbed for many of us in 2020, now might be the perfect time to look at your finances and consider some tax efficient planning.

To be able to benefit from this exemption, you must be able to show that:

• The gift formed part of your normal expenditure – HMRC guidance suggests that they consider what is normal for the person making the gift, not for the average person. The easiest way to satisfy this requirement is to establish a regular pattern of gifting;
• The gift is made out of income and not from capital; and
• After making the gift, you are left with enough income to maintain your normal standard of living – the gift must not leave you unable to support yourself in the manner to which you are accustomed. Many of us have become accustomed to a lifestyle with less spending in 2020, maybe that is a change you have welcomed and want to maintain.

If you are able to satisfy the above three requirements, the gift will be exempt from IHT immediately, with no need to survive the gift by any period of time.
There is no limit to how much can be claimed as normal expenditure out of income. HMRC will look at each person’s individual circumstances when considering whether the above three requirements have been satisfied. What is important is that you keep detailed records of your income and outgoings, as well as any gifts you make each year.

To find out more, please get in touch with your usual Wansbroughs contact or email the Private Client team at wealth@wansbroughs.com.