Commentary

I3.325 Gifts out of income

IHT, trusts and estates

I3.325 Gifts out of income

I3.325 Gifts out of income

A transfer of value is exempt if or to the extent that it fulfils the following conditions:

  1.  

    (a)     it was made as part of the transferor's normal expenditure

  2.  

    (b)     it was made out of his income, taking one year with another, and

  3.  

    (c)     after allowing for all transfers of value forming part of his normal expenditure, the transferor was left with sufficient income to maintain his usual standard of living1

A loan that is a transfer of value can qualify for this exemption if, in place of requirements (a) and (b) above, it satisfies the requirement that the transfer was a normal one on the part of the transferor2.

Gift to be made as part of normal expenditure

HMRC considers that a period of three or four years is reasonable to assess whether a habit of normal giving has been established but it will consider a longer period if this assists the taxpayer in illustrating normality3. However even a single gift which shows a regular commitment, such as a payment under a deed of covenant or the first of a series of premiums on a life policy, may be accepted as normal. However, if there is some clear indication from the outset that the gifts were never intended to continue they cannot be regarded as habitual4. An example would be an insurance policy which provides for payment of premiums over a long fixed period but with a condition that it can be converted to fully paid

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