We act in an estate where the deceased contributed to her daughter’s pension each year. We have reviewed the deceased’s normal expenditure and for the 5 years prior to the date of death the deceased only had part excess income for the first year and sufficient income in year 5 to make these payments. From reading the legislation it appears to me that that payment and part payment out of excess income would get relief from inheritance tax. However, I am concerned that the entire series of payments would fail to qualify for the exemption. Has anyone come across this before?
I do not believe that inadequate surplus in some years will defeat the claim
My reading of the notes to the relevant IHT forms are that the revenue take a “year on year” approach so having insufficient income is not fatal to the claim. You may also be able to use your annual exemption when calculating whether there is surplus income, especially for the first year, and the carry forward, which may tip the balance by adding a further £6,000.
I Will Solicitors Ltd
My experience mirrors Haroon’s conclusion. In effect surplus income in Y1 can be accumulated and used in a later year to support a claim for the relief in a later year. Obviously all the other conditions need to apply , part of a pattern etc.