IHT205/IHT206

[Jason123456]

I've just been reading IHT 206 (the notes for filling in IHT 205), particularly pertaining to £3000 limit on Gifts out of income...

‘exemption for gifts made out of income’ – for deaths on or after 1 March 2011 you can only deduct this exemption if the gifts total is less than £3,000 for each tax year.

However I thought that provided your income exceeded expenditure you were able to make use of this difference by making gifts that could well be in excess of £3000,and these would be IHT exempt.

Where on this form can I enter this information, and ensure exemption is applied?

[AGoodman]

It's explained on page 11 of the notes.

The test is not about IHT exemption, it is whether the estate falls within the category that can use form IHT205 (rather than the fuller IHT400).

If the gifts were over £3k p.a. you need to include them when calculating the size of the estate for this purposes only. If you have to include them and, as a result, the estate is over the threshold, you need to complete IHT400. That comes with a supplementary page on which you set out full details of the gifts and income/expenditure etc.

[Jason123456]

Thank you Agoodman,..

On page 11,..example 1, it refers to an unmarried partner in its calculation,...if however this was the surviving spouse(where the estate passes to he/she), does this indicate that IHT400 would not have to be considered?

[jambojar]

I'm also a bit baffled by this wording. The estate I'm dealing with, including all Gifts from Income, will be below the Nil Rate Band, so there will be no tax due regardless of whether the Gifts From Income exemption is applied. I could therefore use IHT205.

HOWEVER, the deceased's spouse inherits the unused portion of the deceased nil rate band, so it's important that the Gifts From Income exemption is applied. Otherwise, their estate could face a higher inheritance tax.

So should I be using IHT400, 403, etc?