I've just been reading IHT 206 (the notes for filling in IHT 205) in the course of applying for a Grant of Probate for my father's will and came across the following:
- 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
Nowhere else I look on HMRC's site does it mention this £3,000 limit. I've trawled the internet too and a good few accountants / law firms have live IHT guidance that doesn't mention this limit. So - I called the IHT helpline number and was told that the IHT 206 was correct and that "the other documentation hadn't caught up yet".
I'd imagine that this is the sort of thing that professional advisers would be all over and I'm surprised that so many guidance documents out there (including HMRC's own) miss mentioning this. Am I missing something here?
Replies (4)
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Correct IHT form
I think this point relates to the use of the correct form rather than the exemption actually being limited to £3,000.
I suggest that if you want to claim that gifts of more than this are ordinary expenditure out of income, then you have to complete an IHT400 and detail these gifts on the supplementary IHT403.
I think the the point is that HMRC want to have the details and therefore the opportunity to consider the exemption in detail if necessary. The simplified IHT205 for smaller estates does not give them enough information.
I agree the notes could express this better.
Strange note
If it is merely a pointer to the correct form then it is a very strange one, where a gift is made out of normal income it is outside of the scope of IHT. HMRC might want you to fill in IHT403 - and so IHT400 etc etc etc,
A gift out of normal income is not legally a transfer of value as it does cause the estate of the donor to diminish. The mystery is why the note says from 2011 onwards as I'm not aware of any change in law at this time affecting this issue.
Annual exemption?
Surely the only relevance of £3,000 to gifts for IHT purposes is the annual exemption. Any gifts within that limit are exempt anyway (as are wedding gifts up to the relevant limits and the £250 per person), regardless of whether they came out of income or capital. Therefore, you only need to claim "gifts out of normal income" if they exceed those other exemptions. Strange wording though.