The Normal Expenditure out of Income exemption is not automatic — it must be claimed and evidenced during probate. Your executor will need to complete HMRC Form IHT403, and the quality of your documentation will determine whether HMRC accepts the exemption or challenges it. Here is exactly what you need to keep.
HMRC Form IHT403
Form IHT403 is the HMRC form used to report gifts made during the deceased's lifetime. It requires detailed information about every gift: the date, amount, recipient, and — crucially for surplus income gifts — the income source and evidence that the donor's standard of living was maintained. Your executor cannot complete this form accurately without your records.
The Gifting Diary
Keep a written record of every gift you make. For each entry, record: the date of the payment; the amount; the recipient's name and relationship to you; the bank account from which the payment was made; and the income source (e.g. 'March pension payment'). Update the diary after every payment — do not try to reconstruct it retrospectively.
Write your letter of intent before making the first gift — not after. This letter confirms your ongoing intention to make regular gifts from surplus income. Even if you die shortly after starting the programme, this letter helps establish that a habitual pattern was intended from the outset.
Annual Income and Expenditure Summary
Each tax year, prepare a one-page summary showing: total income from all sources; total regular expenditure (itemised); surplus income calculated; and total amount gifted. This summary is the backbone of your IHT403 evidence. Keep it alongside your bank statements and gifting diary.
Bank Statements
Retain bank statements showing the regular transfers to recipients. These corroborate your gifting diary and demonstrate the automated, habitual nature of the payments. If you use online banking, download and save PDF statements annually — do not rely on being able to access historical statements years later.
Tell Your Executor
Your executor needs to know that you have been making surplus income gifts and where to find your records. Include a note in your will or letter of wishes directing your executor to your gifting diary and annual summaries. Consider storing everything in a clearly labelled folder — physical or digital — that your executor can access promptly after your death.