IHTM14244 - Normal expenditure: test of normality

You must test the normality of the gift by the whole range of circumstances including the frequency and amount, the subject matter, and the objects and occasion of gifts made by the transferor.

Frequency

Normal does not mean "regular" or "annual". In most cases averaging the yearly amount of the transferor's gifts of a particular type will help to form a fair opinion, but an arithmetical formula cannot be regarded as a test of exemption.

Amount

The amount of the gift is an important factor. The gifts must be comparable in size but you need not query discrepancies unless the difference has the effect of placing a gift in a different category from those which are regarded as normal. In appropriate circumstances an abnormally high figure may be treated as including the normal figure, the claim for tax being limited to the excess.

Assets transferred

The subject matter is less important, as gifts of capital fall outside the exemption. But a capital asset could be purchased out of income for the donee. In this case, though the subject matter will not necessarily prevent that gift from being regarded as normal, the nature of the gifts must be comparable. For example a motor car may be regarded as comparable with jewellery; on the other hand chattels, cash, securities, or a share in a business may well not be comparable with one another.

Class of beneficiary

In establishing the pattern of gifting, you must consider whether the transferor has habitually made gifts in such circumstances as those being considered, or to persons of the class under consideration. For instance, if the deceased has made charitable gifts, as well as birthday gifts to children, a proved habit of making gifts of the one sort has no apparent bearing on the question 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.

You must take care not to apply these rules too strictly, since the occasion may be relevant in identifying the class of object. For example, if the transferor habitually made gifts to persons in want, such persons may well include both relatives and strangers - either individual or by way of a charitable organisation. On the other hand, gifts to members of the same class are not necessarily always comparable. A gift to set a son up in business for example, would not be in the same category as birthday gifts to children.