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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Lifetime transfers: conditions for normal out of income exemption: factors to consider

You must test the whether a gift is ‘normal’ by considering all the relevant factors. These will include the frequency and amount, the nature of the gifts, the identity of those who received them and the reasons for the gifts.


Normal does not necessarily mean regular or annual although gifts made on a regular basis are more likely to meet the normality test. In many cases averaging the yearly amount of the transferor’s gifts of a particular type will help to form a fair opinion.


The amount of the gift is an important factor. The gifts must be comparable in size although you do not need to query small differences. Sometimes, gifts may be made by reference to a source of income that is by its nature variable in amount, for example annual dividends from company shares. Similarly, gifts may relate to specific costs such as grandchildren’s school fees which may also vary in amount.

If a particular gift is in a in a different category from those which are normal because of its size, further evidence will be needed to see if and how it fits in with the normal pattern. In some cases an unusually high figure may be treated as including an amount that would be normal. The part of the gift that is treated as normal will be exempt and the remaining amount, above the normal part, will not qualify for the exemption.

Nature of the gifts

Lifetime gifts from income will usually be made as transfers of money either directly to the donee or as payments made on their behalf, for example, mortgage payments. Gifts from capital or gifts of capital assets fall outside the exemption. But a capital asset could be purchased out of income specifically for the donee. In this case, the gift may fall within a normal pattern of giving if the nature of the gift is comparable with other gifts made. For example a gift of a car may be comparable to a gift of jewellery of a similar value. On the other hand personal goods, cash, securities, or a share in a business might not be comparable to one another.

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Identity of donees

Gifts made to donees in the same category can usually, but not always, be considered together, for example, birthday gifts to grandchildren. However, gifts made will often fall into different categories such as gifts to family on the one hand and gifts to charitable organisations on the other. A proven habit of making gifts of one sort has no apparent bearing on the question of whether gifts of the other kind were normal. But provided that the gifts in question belong to one category, it does not matter that the individual recipients may have varied.

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Reasons for the gifts

The circumstances around the gifts made and the reasons for them may indicate whether the transferor has habitually made gifts in such circumstances. The reasons may also be relevant in identifying the category of donee. For example, if the transferor habitually made gifts to persons in need, this might include relatives, other people and charitable organisations. But gifts to members of the same category are not always comparable. For example, a gift to set a son up in business would not be comparable to modest birthday gifts to children.