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What does HMRC mean by gifts from 'surplus income'?

A reader seeks guidance on how to avoid falling foul of HMRC rules
July 21, 2022

My wife and I would like to make gifts to family from what we deem to be our excess income that at the same time secure an exemption with regard to inheritance tax. However we are rather in the dark about what counts as excess income as far as HMRC is concerned, and there is not enough detail on Form 403 for me to understand if our plans fall within the rules. Could you shed some light on what is permitted in terms of the gifting rules and also how “excess expenditure” is defined? Will we need to keep detailed records and evidence of the gifts that we make?

DS 

Stephanie Court, private client tax director at RSM UK

A valuable exemption from IHT applies to gifts out of excess income. Gifts which meet the qualifying conditions are immediately exempt from IHT, and there is no monetary limit on the exempt amount, provided the gift does not exceed surplus income.

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