Gifting6 min read
The Overlooked IHT Exemption: Gifts out of Surplus Income
•By ACJ Financial Planning
Unlike PETs, these gifts are immediately exempt – provided you follow HMRC's three-part test.
HMRC's Three Tests
- Regular – a pattern of giving (e.g. annual payments).
- Out of income – not capital.
- No detriment – you maintain normal living standards.
Evidence required
Keep copies of payslips, pension schedules, bank statements and a signed letter of intent.
Typical uses
- Funding grandchildren's school fees.
- Paying life-cover premiums in trust.
- Annual ISA subscriptions for adult children.
Key Point: Handled correctly, every pound gifted this way never re-enters the IHT calculation.
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