Has anyone had experience of claiming the normal expenditure out of income exemption for cash gifts continuing after entry to a nursing home?
IHT14255 shows that regular (life) insurance premiums initially affordable out of income would still be allowable if the transferor later has to pay nursing home fees which were unforeseen when the policy was first taken out.
The wording seems to me to be equally applicable to cash gifts but somehow I can imagine HMRC challenging it, so has anyone successfully claimed this, or is anyone able to advise?
The case I am working on:
Widower gave annual gifts to his children (the eventual beneficiaries of the will), and did everything right:
Part of normal expenditure – regular December gifts to each child for 9 years before his death.
Out of income - documented intention to do this, stating which gifts were from income and which from his £3,000 p.a. allowance
Analysis of income and expenditure for the last 7 years as required for IHT403 shows he could easily maintain his usual standard of living while making the gifts for 5 of those years, until he entered a nursing home with a 2 – 3 month life expectancy following serious illness.
Nursing home fees were about twice his annual income so had to be paid at least partly out of capital, but the excellent care gave him an extra 20 months of life, for which his children remain grateful. He had recovered enough by the next December that he hoped to return home, and actually gave notice to the nursing home shortly afterwards (documented). He later realised he was not quite able to look after himself so remained in the nursing home and sold his house about 8 months before death, making one more gift to each child in that time.
So, can I use IHT14255 to continue to claim this exemption for the gifts in the last two Decembers?
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£3.000
Only comment is that this highlights the need to increase the £3,000 IHT limit - with the announcement that the £325k total will not be increased before 2010, one would hope that this could be increased, to say £11,000 and thereafter be increased in line with the personal allowance.
I agree with Alex London about the £3K annual exemption.
I've also noticed that the gifts out of income exemption is a very useful one, but it's well worth advising anyone who is planning to use it to keep good records as their executors will have to provide summary accounts for each of the last 7 years of life!
The nursing home thing seems a double whammy though as nursing home fees are often not paid, or not paid adequately, for someone who can no longer look after themselves. So it is expected that they should be paid out of capital savings or from the value of the home. But they suddenly seem to be expenditure out of income when the person might want to continue to give regular gifts out of income!