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IHT regular payments out of income

IHT regular payments out of income

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Good afternoon everyone,

I'm looking for some help on an inheritance tax query please.

If someone makes regular payments out of income, if upon their death it transpires that the payments slipped above the income level slightly, would the full payment then fall into the scope of IHT or would it just be the excess payment over the income?

I'm aware that there are other reliefs eg the £3,000 annual allowance, but just wondering if the payments slightly exceed all reliefs available, including the regualar payments out of income exemption.

 

Thanks

 

Replies (9)

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By Tax Dragon
04th Apr 2022 15:22

With respect, I find it hard to believe you can be licensed to offer probate services and not be able to answer this for yourself. If it's not probate services you are offering, then what are you doing for the client?

The answer follows immediately from the section, by the way (which is the main reason I started this reply with the above paragraph). Read the opening line.

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Replying to Tax Dragon:
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By Taxdoesnthavetobetaxing123
04th Apr 2022 15:32

Thanks, not offering probate services - just a query brought up by a tax return client. Will of course advise to get full advice from specialists.

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Replying to Tax Dragon:
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By Taxdoesnthavetobetaxing123
04th Apr 2022 15:32

Thanks, not offering probate services - just a query brought up by a tax return client. Will of course advise to get full advice from specialists.

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Scooby
By gainsborough
04th Apr 2022 15:23

Hmmmm.....the legislation doesn't just mention income though. You need to read the whole of IHTA1984 s21(1):
(1)A transfer of value is an exempt transfer if, or to the extent that, it is shown—
(a)that it was made as part of the normal expenditure of the transferor, and
(b)that (taking one year with another) it was made out of his income, and
(c)that, after allowing for all transfers of value forming part of his normal expenditure, the transferor was left with sufficient income to maintain his usual standard of living.

If the donor made gifts exceeding income, then I cannot see how the criteria for part 1c would be met.

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Replying to gainsborough:
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By Taxdoesnthavetobetaxing123
04th Apr 2022 15:33

Thank you, I did think that would be the case, just being optimistic to check if any argument the other way i think!

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Replying to Taxdoesnthavetobetaxing123:
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By Hugo Fair
04th Apr 2022 18:29

What 'other way'?

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14255
The exemption is based on "after allowing for all gifts forming part of their normal expenditure, the transferor must have been left with enough income to maintain their usual standard of living. Gifts, even if made out of income, will not qualify for exemption if the transferor had to resort to capital to meet their normal living expenses."

Your statement "it transpires that the payments slipped above the income level slightly" is open to many interpretations - but if you meant exactly what you say then (unless the deceased had been living on free air) quite a lot of the gifts will be liable to IHT.

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Replying to gainsborough:
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By More unearned luck
04th Apr 2022 20:17

"If the donor made gifts exceeding income, then I cannot see how the criteria for part 1c would be met."

Perhaps by virtue of the words "to the extent that" and "taking one year with another"?

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Replying to More unearned luck:
Scooby
By gainsborough
04th Apr 2022 21:19

True. I had interpreted as exceeding income regularly but, as Hugo points out, could be interpreted in different ways.

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Replying to gainsborough:
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By Tax Dragon
05th Apr 2022 09:40

Might I guide you slightly away from the second virtuous clause that MUL quotes (which seems to have gained the larger part of your attention) and towards the first?

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