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Income-Led IHT Planning May Be Overlooking More Effective Structures

ended 30. December 2025

With Inheritance Tax thresholds remaining frozen and estates continuing to grow, there has been a marked increase in interest in Normal Expenditure Out of Income (NEoI) as a planning tool.

In some cases, this has extended beyond gifting surplus income to a more fundamental reshaping of investment portfolios towards a “maximum income” approach, purely to support NEoI strategies.

Scott Gallacher, Director at Rowley Turton, says:
“NEoI is a valuable tool, but it’s often being used in isolation. We’re increasingly seeing portfolios redesigned to generate income for gifting, even where that may not be the most efficient or appropriate long-term investment strategy.”

While NEoI remains a well-established exemption when genuine surplus income exists, an income-led mindset can lead to unintended consequences. Portfolios may become skewed towards yield at the expense of diversification, total return and long-term suitability, with higher income tax often being an overlooked cost.

There are also practical limitations. NEoI relies on consistency, robust record-keeping and ongoing surplus income, and it typically removes value from the estate only gradually, with both capital and growth remaining exposed in the meantime.

By contrast, Scott adds:
“Structures such as Gift and Loan Trusts can remove both income and future growth from the estate immediately, while retaining access to the original capital through a loan. In the right circumstances, this can be viewed as a more decisive — or ‘supercharged’ — form of income-based planning, without forcing clients to distort investment strategy purely to generate income.”

This is not a question of whether NEoI is right or wrong, but whether it is being over-relied upon in situations where other planning tools may be more appropriate.

Questions for other experts:

  • Are you seeing clients increasingly restructure portfolios purely to maximise income for NEoI gifting?
  • How do you balance income-based exemptions against total-return investment principles in estate planning?
  • Do you feel Gift and Loan Trusts are underused compared to NEoI, and if so, why?
  • Has increased HMRC scrutiny changed how comfortable you are relying on NEoI alone?

2 responses from the Newspage community

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Scott Gallacher
Director at Rowley Turton
One of the practical issues I’m seeing is that NEoI often removes value from an estate very slowly, while growth continues to accumulate within it.

For larger estates, or for asset-rich but income-light clients, structures that remove future growth from day one can sometimes be a more proportionate solution, while still allowing clients to benefit from the original capital through loan repayments.
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Colin Low
Managing Director at Kingsfleet
Gifts out of Normal expenditure is the forgotten IHT planning tool that is now part of the conversations of the dinner parties of middle England.
Whilst it is simple and effective, there are numerous other solutions which are also straightforward, HMRC approved and have a varying degree of future access.

These include Business Relief investments and various Trust based solutions. It is critical that individuals seek Independent Financial Advice to ensure that all options have been considered and a suitable recommendation is made.

An adviser who also holds qualifications with the Society of Trust and Estate Practitioners will have added knowledge and experience in this area.