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Hello Sir
Normal expenditure out of income is habitual gift made on a regular pattern not affecting donor’s standard of living.
1)Hereby does regular pattern mean on an annual basis?
2) And what if gift has been made, lets say,
1st day of each month for 8 months
Does this gift qualified as normal expenditure out of income ?Grateful if you can help
Thank YouFirstly don’t worry about this issue as it would have to be made very clear to you in an exam question that this was normal expenditure – but it would be gifts made over years rather than months, for example a grandfather pays the annual private school fees for his grandchild during his education
There’s this question from BPP kit
Mary made the following gifts in tax year 17/18:
1) £1,000 on the 1st day of each month for nine months to grandson to pay university living expenses. Mary used income surplus to her living requirements to make theses payments.
2) £100 to her grandnephew on his birthday & further £250 to the same grandnephew as Christmas gift.
Ignoring the annual exemption what is the total value of potentially exempt transfers made by Mary as a result of these gifts?
Answer as per BPP is £350.
Part 1 of this question is assumed to be a normal expenditure out of income,
On which getting confusion.
My answer was £9,350And one more question, for normal expenditure out of income is there a cash limit?
Thanks to help
I would agree with you , just breaking down what could have been one payment into several monthly payments made in one year I would not believe at that point in time would represent normal expenditure – though the question clearly indicates it is out of spendable income. Remember that in reality the transfers would only be reviewed for IHT purposes if the taxpayer dies within 7 years – so if these payments continued on for the years that the grandson was at university and then she died then they probably would qualify but to look at the payments made this year in isolation would not constitute normal expenditure out of income – this is basically a poor question set by BPP so don’t worry about it!!
There is no cash limit as it will be different for each person and based on their income – clearly a person with income £1M has a far greater capacity to make such gifts than someone with income of £40,000.
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