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Tax Tip

Inheritance Tax Gifts out of Income. 15/04/2011

The Normal Expenditure Out of Income (NEOI) exemptions entails making a gift of money from your annual income on a regular basis. For example, if you transfer £9,000 a year into a bank account or other investment for your children, after 15 years that’s worth £135,000 out of your estate, saving IHT of up to £54,000 (£135,000 x 40%). If you had accumulated that sum and then given it as a lump sum, it would stay as part of your IHT Estate for 7 years.

A gift from your income is IHT exempt from the moment it leaves your bank account.

What is Income?

There is no definitive list as to what counts as income or as capital. Clearly, income such as earnings or profits from work, interest from savings and dividends from shares are all income, but other sources such as inheritance, endowment payouts, are all capital. The taxman says that if its income for Accounting purposes, then its income for NEOI.

Stuart Coleman, Manager of the Tax Department of ABDS says:
“Be careful Income if accumulated for a period of over two years can be re-categorised as capital by the Taxman.”

For more information about making gifts “out of income” or a similar matter don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning and business advice.

Tel: 023 8083 6900  E-mail: abds.marketing@netaccountants.net

For a full list of ABDS’ News Briefings go to: www.netaccountants.net

ABDS of Southampton, for all of your Inheritance Tax Planning, Compliance and Tax Returns.

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