IHT - Normal Expenditure all or nothing?

ABetterDeal

How would HMRC treat the Normal Expenditure out of Income exemption (IHTM14231) in the following example:

Regular payments of £10k/pa are set up, however it turns out that when claiming the exemption (when the time comes), there was only £8k of excess income and so £2k had to come out of capital (i.e. 8k being the break-even point for the current lifestyle).

In such a case, would the exemption still apply but only to the £8k (with the 2k counting as a gift out of capital) or would the whole exemption be void (two years retrospective income notwithstanding)?

It's hard to derive these specific cases with the information from the IHTMs! Thanks

Keep_pedalling

The exemption would still be claimable for the actual excess available.

ABetterDeal

That makes things considerably easier!

Do you have a source directly from legislation, a law firm, or perhaps previous court cases that I can refer to to bolster my case (should I need it)?

mybestattempt

https://forums.moneysavingexpert.com/discussion/comment/81871231#Comment_81871231

It's not clear whether you are preparing for your own demise or being executor of an estate.

In any event you may find these extracts from the HMRC IHT manual are helpful:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14132

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14244

The important point to keep in mind is that each case turns on it's own facts. Every estate is different and it isn't possible to predict if/what HMRC may query.

However, I assume/hope you have made yourself familiar with the IHT403 form and are ensuring documentary evidence will be available to verify the detailed information needed to complete it accurately when the time comes.

ABetterDeal

Thanks

I'm trying to remove the complexity of gifting for the benefactor from hereon out to compensate for lack of previous IHT planning whilst knowing that records will be available (e.g. bank statements) to help with the IHT403 form when the time comes