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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: conditions for normal out of income exemption: Case Law - Bennett v IRC

The case of Bennett and others v Inland Revenue Commissioners [1995] STC 54 involved consideration of the first condition (IHTM14231) for exemption that the gifts made should form part of the normal expenditure of the transferor.

The judge’s view (Lightman J) was that the term normal in this context:

‘connotes expenditure which at the time it took place accorded with the settled pattern of expenditure adopted by the transferor.’

He considered that the existence of the settled pattern could be established in two ways:

  • an examination of the transferor’s expenditure over a period of time may reveal a pattern, for example a payment each year of 10% of all income to charity or members of the individual’s family, or
  • the individual may be shown to have assumed a commitment, or adopted a firm resolution, regarding their future expenditure and then complied with it. The commitment may be legal, religious or moral. The commitment or resolution need have none of these characteristics but may still be effective to establish a pattern, For example, to pay the annual premiums on a life assurance policy gifted to a third party or to give a pre-determined part of one’s income to one’s children.

Before turning to the facts of the case, the judge summed up the requirement for expenditure to be normal:

‘What is necessary and sufficient is that the evidence should manifest the substantial conformity of each payment with an established pattern of expenditure by the individual concerned - a pattern established by proof of the existence of a prior commitment or resolution or by reference only to a sequence of payments.’

Refer any challenge to this view, or to the way the IHTA84/S21 legislation has been applied, to Technical.