IHTM14241 - Normal expenditure: considerations

There is no set time span over which the taxpayer must show the habit of giving. A reasonable span would normally be three to four years. However, you can consider a longer period if this assists the taxpayer in illustrating normality ( IHTM14244).

Where there has been a very small number of gifts shortly before the making of the gift under consideration, the test is whether there is evidence that those gifts initiated a habit which the transferor intended to continue.

• Even a single gift by way of payment under a deed of covenant or other regular commitment, such as payment of the first of a series of premiums on a life policy may be accepted as normal.

On the other hand there may be indication that the gifts were from the outset never intended to continue.

• Some life policies provide that after payment of the first premium the policy may be converted into a fully paid one.
• A policy may also be taken out when the transferor's expectation of life was very short.

In either of these cases, any gifts could not be regarded as habitual.

You must also distinguish between a regular commitment and a mere expression of intention, for example a settlement of a small cash sum and any other property the settlor may thereafter think fit to transfer to the trustees. You should not regard the latter as evidence of the initiation of a habit.

Non-death cases

If, exceptionally, the exemption has to be discussed during the transferor's lifetime and within the principles outlined above the taxpayer asserts that a first gift is part of an intended series, you can allow the exemption provisionally in the first instance. Make it clear that HMRC proposes to review (and if appropriate disallow) the exemption by reference to the transferor's future bounty if any.