Normal Expenditure Out of Income

When it comes to Inheritance Tax planning, one of the most valuable but underused exemptions is the Normal Expenditure Out of Income exemption. This rule allows you to make regular gifts out of your surplus income — completely free from Inheritance Tax from day 1 — as long as the right conditions are met.

But HMRC are strict. To rely on this exemption, you need to be able to show a clear pattern of gifting, prove it came from income (not capital), and keep detailed records over time. Without proper documentation, it’s easy for the relief to be challenged — even when your gifts genuinely qualify.

That’s why we’ve created this FREE Normal Expenditure Out of Income Record Template — a simple way to record your gifts properly. The template helps you track amounts, dates, sources of income, and recipients, so you can evidence to HMRC that your gifts meet the exemption criteria.

However, the template itself doesn’t determine eligibility. Each person’s circumstances are different, and HMRC look closely at your income levels, spending patterns, and the intention behind your gifts. If you’re gifting regularly or planning to make larger transfers, it’s definitely worth getting advice early on to make sure your excess income qualifies and avoid any issues down the line with HMRC.

That’s where we come in. We help clients structure their gifting strategy properly — so they can make the most of the exemption, reduce future IHT, and keep everything compliant.

This guide is a good starting point for you if:

• You regularly support children or family members financially.
• You’re looking to reduce your future IHT exposure while retaining control of your assets.
• You want to document your gifts properly so they’re clearly exempt from IHT.

Get in touch for further advice on

• What qualifies as “normal expenditure”?
• How do I prove a gift was made from income, not capital?
• Can one-off gifts qualify for the exemption?
• How do I balance gifts with maintaining my own standard of living?