What is a gift out of excess income?
On the other hand, if an individual gives away revenue before it loses its income character, the cash is never deemed to have been accumulated to capital, and therefore the gift is not considered a PET. Instead, it is exempt from all tax for both the donor and done, irrespective of how long the donor survives. For example a gift of £35,000 made from excess income rather than capital could present a saving of up to £14,000 of tax.
However there are rules about which gifts can qualify:
- Most importantly, it must be made from surplus income. This means that, after making the gifts, the donor must retain enough income to maintain their normal standard of living.
- Gifts must also be considered ‘normal’, by virtue of conforming to a settled pattern, which is in turn demonstrated by regular amounts or the commitment to a recurrent expenditure, e.g. school fees or life assurance premiums.