Gifts out of income

[sirp2000]

My friend's widowed father died recently aged 96.

For the last 3 years, he gifted son £1000 a month by standing order. His net income was about £70,000 pa so this seemed reasonable gifts "out of income".

However, it has now transpired that because of continuous home care, the father's actual expenditure (not including the standing order) exceeded £90,000 pa.

He maintained his usual standard of living because he had accumulated savings.

Can the executors claim "normal expenditure out of income" on IHT403 or will the £36,000 less annual exemptions be taxable?

[Lee Young]

If there was no surplus income, which on your figures there is not, the the gifts will be treated as "normal" potentially emexpt transfers, and therefore use up part of the nil rate band, assuming it is available.

[sirp2000]

If there was no surplus income, which on your figures there is not, the the gifts will be treated as "normal" potentially emexpt transfers, and therefore use up part of the nil rate band, assuming it is available.

Thank you Lee.

You have confirmed what I feared was the case and I will let the son know.

[AGoodman]

Just in case, don't forget the £3,000 annual exemption (which can be carried forwards from a prior year if unused)

[maths]

The gifts to son £36,000 in all are PETs (as normal income out of expenditure inapplicable) which means they fall chargeable to IHT if death of donor occurs within 3 years of making them (as appears to be there case). The liability to IHT if any on the gifts is that of the sone ie the recipient.

However, if on death the deceased had a nil rate band (£325,000) available to him no actual IHT charge arises on the part of the son as the £36,000 (or £27,000 post annual exemption of £3,000pa) but the amount of nil rate band to offset against the death estate is correspondingly reduced.

What was the size of the deceased's estate?