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Tax tip: Trusts and normal expenditure out of income exemption

03 June 2024
Issue: 4939 / Categories: Forum & Feedback
Using trusts and the normal expenditure out of income exemption.

With inheritance tax receipts continuing to increase those with sizeable estates should continue to take action to reduce the potential IHT liability on their death.

Those with surplus income should consider using the normal expenditure out of income exemption (IHTA 1984 s 21 and IHTM14231). Such gifts are normally exempt when made – there is no requirement for the donor to survive seven years. Gifts will be exempt if made out of the donor’s income (earned income investment income and some tax-free income) are made on a regular basis and are of such size that they don’t affect the donor’s standard of living. The donor should fully document gifts by completing form IHT403.

Donors making gifts for the benefit of children may find a trust an attractive option. The type of trust will depend on the relationship between the donor and the beneficiaries and the...

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