Gifting out of income – The overlooked way to reduce Inheritance Tax

For many people, giving financial support to family members is an important part of their financial planning.


Whether it is helping children with pension contributions or providing ongoing assistance, gifting can play an important role in Inheritance Tax (IHT) planning.


The normal expenditure out of income exemption under Section 21 of the Inheritance Tax Act 1984 allows for gifts to be made without being chargeable for IHT purposes, if specific conditions are met. 


What are the requirements?

Under Section 21, gifts can be exempt from IHT if they are part of a person's normal spending habits, are paid from their income and leave them with enough income to maintain their usual standard of living.


This exemption only applies to gifts made from surplus net income, not from capital or savings.


For example, withdrawals from an investment bond or the capital part of a purchased life annuity payment would not qualify.


The donor must also be able to cover their normal living costs from their remaining income and cannot give away income and then use capital to make up any shortfall.


Why is record-keeping important?

As the exemption is usually claimed after death, it is important to keep clear records of any gifts made under the normal expenditure out of income rules.


HMRC form IHT403 includes a schedule that can be used to record these gifts as they are made and can help support a future claim.


To work out whether gifts need to be reported, the donor must add together any gifts made under this exemption and any chargeable lifetime transfers made during the previous seven years.


If the total is more than the available nil rate band, all gifts must be reported to HMRC using form IHT100.


HMRC will then review whether the exemption applies and confirm its decision in writing.


If the total remains within the nil rate band, the exemption is usually reviewed only after the donor's death, when the executors can claim the exemption using forms IHT400 and IHT403.


How can we help?

Planning for IHT helps to safeguard your family's future, as utilising vital allowances enables you to minimise your IHT contributions.


Our team of accountants can support you with gifting out of income so that you can provide for your family's future. 


Get in touch with our team for support with Inheritance Tax planning. 

Sequencing short-term finance effectively is vital for avoiding the interest trap

By Charlie Flockhart • September 9, 2026
For many businesses, short-term finance can provide an essential lifeline when cash flow becomes tight. Whether a business needs support covering a gap between paying suppliers and receiving customer payments, or managing seasonal demand, the right type of finance can keep a business moving during uncertain times. However, using short-term borrowing without a clear strategy can quickly become a slippery slope of missed payments and further injections of cash. Choosing the right type of finance for your business? Not all types of short-term finance are designed for the same purpose, so businesses need to choose the option that best matches their needs. An overdraft can provide a flexible cash buffer for day-to-day cash flow pressures, with interest usually charged only on the amount borrowed. Invoice finance can help unlock cash tied up in unpaid business invoices, while a short-term loan may be more suitable for funding a specific purchase or project. Problems can arise when businesses use one type of finance to solve an issue it was not intended to address. A short-term cash flow gap can turn into a long-term borrowing habit, causing interest costs and fees to build up over time and reduce profitability. How to avoid the interest trap? While short-term finance can be a valuable tool, it is important to understand the full cost of borrowing. Some forms of finance, such as certain credit cards, bridging loans and revolving credit facilities, can have higher interest rates and shorter repayment terms. Although these products can be useful in the right circumstances, they can place additional strain on businesses with unpredictable cash flow. Understanding the total cost of borrowing can help avoid unnecessary expense and ensure the finance remains affordable. Matching the right type of finance to the right business need can help businesses manage cash flow more effectively and avoid falling into an expensive cycle of debt. How can we help? Before you fall down the slippery slope of short-term finance, get in touch with an accountant. We understand that short-term finance can sometimes feel like the only option. Our team can help assess your cash flow needs, review your funding options and support you in choosing a solution that helps your business grow while keeping borrowing costs under control. For support with short-term finance options, get in touch with our team.

Inflation increases to a four-month high – How will businesses be impacted?

By Charlie Flockhart • September 9, 2026
The rate of inflation has hit 2.9 per cent in July 2026, up from 2.6 per cent in June, according to the latest data that has been published by the Office for National Statistics (ONS). This is the first rise in the national rate of inflation since March 2026, with the increase in the energy price cap being partly to blame. Businesses need to understand how this hike will affect them and what they must do to mitigate the issues. How is inflation affecting businesses? Higher inflation can increase the cost of running a business. Energy-intensive businesses and manufacturers are likely to feel the greatest impact, as rising energy prices can lead to higher production, transport and operating costs. Many businesses are already dealing with tight profit margins and may find it difficult to absorb these additional costs. Passing increased costs on to customers is not always straightforward, as consumers remain cautious about spending and may look for cheaper alternatives if prices rise too much. Inflation can also affect employment costs. Employees may expect higher pay to help maintain their spending power, creating additional pressure on business finances. With employment costs already rising, some organisations may take a more cautious approach to recruitment or delay planned investments. What should businesses do to mitigate the impact of inflation? With inflation remaining uncertain, businesses should review their budgets regularly and keep a close eye on cash flow. Understanding where costs are rising most quickly can help businesses identify areas where savings or efficiencies can be made. Businesses should also assess their pricing strategies to ensure they remain competitive while protecting profitability. Investing in technology, improving efficiency and carefully managing expenditure may help reduce the impact of rising costs. Strong financial planning and regular monitoring of business performance can help organisations remain resilient if inflation continues in the months ahead. How can we help? While the rate of inflation increasing to 2.9 per cent may not seem like a huge change, businesses must consider the impact that it will have on wider spending. Our team can help you manage your cash flow by completing financial forecasting to ensure that your business stays resilient should inflation rates increase further. For support with cash flow, get in touch with our team.

Reckless tax statements: How could an honest mistake become criminal?

By Charlie Flockhart • September 9, 2026
In June 2026, the Government published a document to gather views on the introduction of a criminal offence for making reckless or untrue statements relating to tax. The Institute of Chartered Accountants in England and Wales (ICAEW) has warned that the proposal risks confusing taxpayers and discouraging voluntary disclosures. Instead, the ICAEW has advised HMRC to make ‘better use of its current powers,’ before criminalising ‘reckless offences.’ Is the offence needed? The rules for apprenticeship funding change most years, so it is essential to keep up to date and be aware of how apprenticeships will be affected. The 2026/27 rules establish that: The Government has justified the offence as a way of providing consistency between indirect and direct offences, mirroring what is in place for indirect taxes. For example, untrue statements relating to VAT and customs can be prosecuted, or where an individual has submitted incorrect documents knowingly and recklessly, without HMRC having to prove dishonesty. No equivalent exists for direct taxes. The Government argues the new offence would create an enforcement tool that could be used in direct tax cases where dishonesty is unable to be established, but a sanction is needed. This would not only apply to taxpayers, but also agents who recklessly make a statement or declaration to HMRC on someone else’s behalf. How does the ICAEW view the proposed change? The ICAEW strongly opposes the introduction of the new offence. It noted that the equivalent offence for indirect tax offences is rarely used, which raises doubts over whether it is even effective. ICAEW suggests the change should be scrapped, as it views HMRC as already possessing the powers it needs to handle non-compliance. The larger worry is with the definition of ‘reckless’, with the ICAEW suggesting most taxpayers and advisers might struggle to understand how it could be applied. As the current tax system already categorises behaviour into careless, deliberate and fraudulent, another definition might cause added confusion. Where the line is hard to draw, compliance checks will be hard to enforce. Speak to an accountant Reaching out to an accountant can help ensure that statements are evidenced when you file, alongside clear records of the decisions and checks made.  If a claim or treatment might be deemed as uncertain, seeking advice before it is submitted can help you flag potential issues before a compliance check arises. Reach out to an accountant to make sure your tax claims are properly evidenced.