Flexible Normal Expenditure Planning

The 1984 Inheritance Act set up an important concession for those who wished to make gifts out of their annual income. As long as certain criteria were met, such gifts became immediately exempt from Inheritance Tax. In summary, there are three qualifications: (i) the gifts should intend at outset to be regular (normally 3 or 4 years); (ii) they should arise from income that had already been assessed for income tax; and (iii) the individual should be able to maintain their normal standard of living after the gift had been made.

This allowance has been a veritable boon for consistent high earners who have been able to reduce their assessable estates on an ongoing basis. However, it has also been an allowance severely under-utilised given the different strands of income that qualify. Aside from salary and bonuses, income derived from dividends on equity or unit trust holdings, buy to let property income and surplus pension income are all qualifying gifts.

In 2006, WAY opened up further commercial possibilities for this arrangement by the introduction of a reversionary interest trust crafted around this exemption. This adoption allows gifts to be made into a trust - gaining immediate IHT relief.

And for the investor to have options from the 5^th anniversary of the plan to take an income from the trust. This provides a 'comfort blanket' for those with quality earnings now but whose circumstances may reduce, for whatever reason, in the future.

Additionally, the WAY Gifts From Income Plan allows for ad-hoc loans or gifts to be made to third parties to cater for emergencies. The balance of the trust passes to the nominated beneficiaries, free of IHT, on death.