With the extension of Inheritance Tax to most unused pension funds and pension death benefits from April 2027, IHT is very much in the public eye.
Valuable IHT exemptions
With timely advance planning, it is still possible to take advantage of valuable IHT exemptions. These include the annual exemption of 3,000 pounds and the exemption for small gifts made to individuals not exceeding 250 pounds per tax year per recipient. Gifts from one spouse or registered civil partner to another are also generally fully exempt.
Another option is the exemption for normal expenditure out of income, which can apply when a gift is part of normal expenditure, made out of income taking one year with another, and leaves the giver with sufficient income to maintain their usual standard of living.
Lessons from recent tribunals
A recent First-tier Tax Tribunal case involving gifts totaling over 1.7 million pounds highlighted the strict evidentiary requirements for the normal expenditure exemption. Despite having income well in excess of living needs, the taxpayer’s case failed because there was no clear evidence of a settled prior commitment or predictable regularity in donations over time.
To benefit from this exemption, it is essential to demonstrate a settled pattern of expenditure measurable over a period of time. Please don’t hesitate to get in touch for further advice on this or any other aspect of IHT.
