Interitance tax: payment of school fees

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September 12, 2017 at 10:59 am #407308
rach1234
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Suppose Xyz has a income of 15000£. If he pays school fees of grandchild or neice of 10000£ and makes another PET after that to another person. So will the school fees be taken into consideration for IGT because it will lower the standard of living of XYZ or he will have to dip his capital to maintain standard of living.
Thanks and Regards
September 12, 2017 at 4:14 pm #407355
Tax Tutor
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The school fees though if paid annually and therefore being normal expenditure, would clearly not be out of income without impacting on his normal standard of living and therefore the normal expenditure out of income exemption would not apply. These gifts would therefore be PET’s and subject to the normal rules with the AE applied to the first transfer in each year.
September 12, 2017 at 4:57 pm #407358
rach1234
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Thanks tax tutor. Only in this scenario because of his low annual income, the annual school fees will be considered a PET. In other circumstances, it would be not in scope of Interitance tax, right?
September 16, 2017 at 12:27 pm #407730
Tax Tutor
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If income levels had been higher then the normal expenditure out of income rules would apply and the transfers would be exempt, but in this case as noted above the transfers would be PET’s subject to the deduction of the £3,000 AE
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