I3.322 Annual exemption generally
Transfers of value made by a transferor in any one tax year are exempt to the extent that the values transferred by them do not exceed a stated amount, currently £3,000, in total. A tax year begins on 6 April and ends on 5 April the following year1. All references to 'year' in this commentary mean a tax year. This figure is not index linked, and has in fact remained at £3,000 since 1981.
Where a transfer is immediately chargeable (see I3.319) and the transferor is paying the IHT on it (see I3.523) the transfer is not grossed up in determining whether or to what extent it exceeds the exempt amount2. When such a transfer is exempt in part, such as where A transfers £5,000 to a trust, the exemption is applied first and only the balance of £2,000 is grossed up.
If the total values transferred in any year are less than £3,000 the shortfall may be carried forward and added to the £3,000 for the next following year but for that year only3. However, where the value of the exemption changes, only the amount that is exempt may be rolled forward. So in relation to transfers of value made in the year 1981/82, the maximum amount which could be carried forward from the previous year 1980/81 was £2,0004, which was the annual exemption applying in that year. Contrast this with the nil rate band transfer where the unused proportion is carried forward.
If the total exceeds