Normal expenditure out of income exemption (UK inheritance tax)
A lifetime transfer can be exempt as normal expenditure out of income if it forms part of the donor’s normal expenditure, is made out of income and leaves the donor with enough income to maintain their usual standard of living. Whether a pattern is normal depends on the donor’s circumstances; even a first gift can qualify if evidence supports an intended pattern. Records and the statutory conditions matter, and repetition by itself does not establish the exemption.
Worked example
A donor gives a relative £100 each month from surplus income, following an established pattern and maintaining their usual living standard. Assuming all statutory conditions are met, the gifts may qualify for the exemption.
Common mistake
Assuming every regular payment automatically qualifies without testing its source and effect on the donor’s standard of living.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | TX (UK) | Direct | June 2026–June 2027 |