Old Mutual Wealth launches trust solution to help clients pass on excess income free from IHT

14/02/2018 News Team

Old Mutual Wealth and Old Mutual International have launched an 'Excess Income' Trust solution and online tool to help clients benefit from the ‘normal expenditure out of income’ exemption.


The ‘normal expenditure out of income’ exemption enables people to gift excess income to their beneficiaries free of any UK inheritance tax (IHT) concerns, provided the payments meet a certain criteria.


The new online calculator will make it easier for financial advisers to calculate their client’s excess income. This excess income can then be used to fund payments into the Excess Income Trust (through an onshore or offshore bond). These payments from income will not be subject to the usual Chargeable Lifetime Transfer charge for discretionary trusts, making it extremely tax efficient.


According to research by Old Mutual Wealth, 90 percent of people with excess income and an IHT concern say they might consider using the ‘normal expenditure out of income’ exemption rule in the future in order to pass wealth on to their beneficiaries tax efficiently.


The current IHT annual gifting allowance is set at just £3,000 a year, and hasn’t increased since 1981. If this had increased in line with inflation, it would now be worth £10,000. This means that gifts to loved ones, above the annual allowance, could be subject to IHT if the donor dies within seven years. With IHT set at 40 percent, this could be a concern for many clients.


Rachael Griffin, financial planning specialist at Old Mutual Wealth, said: “The Chancellor has recently requested a review of the inheritance tax regime. This is a golden opportunity for much needed reform and simplification and a key area of focus should be the rules around gifting during lifetime."


“Using the exemption rule to fund payments into a trust solution is incredibly powerful. Trusts are already tax efficient, but the removal of the Chargeable Lifetime Transfer charge on contributions from income will make it even more efficient for people to pass on their wealth either during their lifetime or on death. This will make it an attractive option for those still working to use any excess income to fund their beneficiaries’ future in a tax efficient way.”

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