Q. As a retired doctor, I find that my Inheritance Tax position needs urgent attention. I understand the rules about gifting lump sums and the issue of "Potentially Exempt Transfers (PET)", but I am confused as to the rule about gifting from income. How does this work?
A. This is an often ignored and underused route to saving sizeable amounts of Inheritance Tax.
Whether or not you are going to utilize the gifting of lump sums, you are allowed to use any income that is surplus to maintaining your standard of living to gift to (say) your children.
As long as this gifting is habitual, and records of expenditure demonstrate that it is genuine spare income (that can also include interest from deposit accounts) then these gifts are not deemed to be a PET. The amounts can also vary each year depending on the exact outlay you experience each year.
So, as long as you are confident that you definetely can afford to use this route, it is an excellent way to "leak" wealth in a very tax efficient manner. Meanwhile, the children can use these gifts to reduce debt, for example.
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