"Normal Expenditure Out Of Income Exemption"

RAFMAC

If I gift my 3 grandchildren £3000 each (total £9000 a year), every year to go towards their future etc. and have been for the last 7 years. The money has come from income that does not impact my life (not from my savings). Does that come under the 7 year rule?

Can this count as Normal Expenditure Out Of Income Exemption rule. It is done annually or will this come under the 7 year rule. Thanks

Keep_pedalling

If you have £9k or more excess income then the gifts fall out of your estate without immediately. The main difficulty for your executor is to show this is actually excess income so you need to leave a detailed record of both your income and expenditure other wise they are going to struggle to claim this exemption.

RAFMAC

Thank you for the information. I have written a gifting letter to each child every time I gift the amount and date gifted. Will this be enough for the executor to carry out my wishes. Thanks

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81995947#Comment_81995947

A gifting letter ( by itself) will not assist your executors in proving the gifts were from your excess income after deducting your annual living expenditure .

Your executors will have to prove this is the case in granular detail at page 8 of form IHT 403 - below

https://assets.publishing.service.gov.uk/media/69c6934978ca1aa5a63609d9/IHT403-04-26.pdf

Suggest you familiarise yourself with the requirements of that form, to determine if the quality of your record keeping and supporting bank statements will give your executors a fighting chance of sustaining a valid claim for the relief.

Keep_pedalling

Would your estate actually be in or near IHT territory?

webmasterpolo

From your description so far, probably not exempt for surplus income, but the first one made over 7 years ago will be exempt now under the 7 year clock.

Gifts from surplus income is an amazing tool, but difficult to prove. Making a monthly gift via standing order rather than 3k lump sums would be an easy start to set it as income rather than capital, even if the capital is saved up income.

The 403 form above and HMRC approval is ultimately what's needed to get the surplus income exemption. Making it as easy as possible for your executors to complete and claim it is your best bet at qualifying. You can try and gather the historic details from bank records etc for the old ones, but if you are to continue making these gifts, I'd strongly suggest you do it monthly and keep more accurate records from now on to make it super easy for your executors, filling in the 403 form each year is ideal.

If you have a financial adviser they should be able to assist you with the 403 form and provide support with IHT planning advice for your personal circumstances. If not you should speak to one as there are loads of ways to organise your estate to minimise the tax bill but also the hassle of dealing with all this.