Liquidating annuities

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There are 3 tests that a gift must pass in order to qualify for the exemption: 1) it must form part of the donor’s normal expenditure 2) it must be made out of the donor’s income; and 3) it must leave the donor with sufficient income to maintain their normal standard of living Note that the gift must be unconditional; ie unrestricted with no strings attached and not in lieu of goods or services of any kind.There should also be no reservation of benefit to the donor otherwise the gift will be treated as a GROB and potentially subject to IHT when the donor dies.Gifts must be comparable in size in order to qualify under the exemption, although this would normally only be queried if some of the gifts were abnormally high compared to the others. For example, a car may be regarded as comparable with jewellery, but assets like chattels, cash, shares or business interests may well not be comparable with each other.This applies even if the original gift took the form of cash which was then used to buy the asset in question.

If a person has sufficient surplus income, it is perfectly legitimate to make gifts out of it without limit, provided that the donor has sufficient income after making the gifts to enjoy his/her normal standard of living.

For that reason, the exemption is normally only useful to wealthy individuals with a substantial private income, not all of which they need to maintain their own standard of living.

The period between acquiring income and making gifts out of it must not be too long.

This does not mean normal in the usual sense of the word. In the view of Justice Lightman J in Bennett v IRC it must accord with the settled pattern of expenditure adopted by the transferor.

He considered that this can be established in 2 ways: It should be noted that normal does not have to mean regular or annual such as birthday or Christmas presents.

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