General information, not tax or legal advice. Whether a gift is exempt is decided after the death, on all the evidence, by HMRC or, on appeal, a tribunal. Take advice from a tax adviser or solicitor before relying on this exemption for large sums, gifts into a trust, gifts made by an attorney, income saved up over several years, a business or farm, or where care fees may be assessed.
What you keep now is what your executors will need later. The record follows IHT403 line for line, so the executors can copy it across. It adds what the form cannot hold and HMRC's practice asks about: which stream each gift belongs to, which year's income paid it, and who made it. Nothing on it is filled in for you.
This page will still be here.
Leave an email and we'll send you a link back to the gifts out of surplus income record. The download above stays free either way.
Most of what decides a claim is HMRC's practice, not the Act. HMRC's Inheritance Tax Manual is how its officers read section 21. It can change without a new law, so every card says whose rule it is: Law, Case law or HMRC practice.
The High Court in Bennett v IRC held that "normal expenditure" means spending that fitted the settled pattern you had adopted. HMRC's manual adopts it. A pattern can show in two ways: payments repeated over time, or a commitment or firm resolution about future spending that you then kept to. HMRC says the commitment "may be legal, religious or moral".
If a prior decision can be shown, a single payment carrying it out may be enough. A deathbed decision to give "for life" will not be (Bennett, as quoted in Hosking, 2026).
HMRC's manual says there is no set time span over which the pattern must be shown. It says a reasonable span "would normally be three to four years", and that a longer period can be looked at. That is HMRC's working norm, not a rule in the Act.
A single gift can count as the first of a series, such as the first payment under a deed of covenant, but HMRC wants strong evidence it was meant to be the first. That is harder for a single gift made close to death.
HMRC says normal "does not necessarily mean regular or annual". Gifts must be comparable in size, but small differences are not queried. Amounts can vary with a source that varies, such as yearly dividends or a grandchild's school fees.
GOV.UK's short summary speaks of paying "from your regular monthly income". The Act says "taking one year with another", and HMRC's manual does not require monthly payments. This record follows the Act and the manual.
HMRC's manual says an unusually large gift may include an amount that would be normal. The normal part is exempt; the part above it does not qualify for this exemption. The Act's own words are "if, or to the extent that".
So the record splits a gift into a normal part and an excess. The excess is treated like any other gift.
The Act does not define income. HMRC works it out for each year under normal accounting rules: it is the net income after income tax, and not always the same as income for income tax. Salary, pensions, rents, interest and dividends are the usual sources.
If a gift is paid from a current account, HMRC's manual says it only checks that the gift could have come from income. It does not trace particular money.
HMRC starts with the income of the year the gift was made. Where there is no evidence the other way, it treats income as becoming capital after two years. Its manual tells officers to deny a claim that a gift came from several years of saved income, though it calls this contentious.
In McDowall, about three years of saved income was accepted as income. HMRC says that case does not mean unspent income stays income for ever, and that a bare statement of an intention to save up for a gift should not be accepted without supporting evidence.
Payments from insurance policies, including regular withdrawals from an investment bond, are usually capital, even if they are regular and taxed as income. Payments from a lifetime care plan are a return of capital. The capital part of a purchased life annuity is not income under the Act itself.
A life-policy premium is not normal spending if an annuity was bought on your life, unless the two were not "associated operations" (s.21(2)). The record has a line to note any annuity beside a premium.
Gifts out of income do not qualify if you had to use capital to meet normal living costs. HMRC looks at income and spending for each tax year to 5 April. Gifts that are not normal spending are left out of the test. You need not have spent the income on living costs: it is enough that it covered both.
A later, unforeseen fall in income, such as nursing home fees, may not lose the exemption for a commitment made while there was a surplus. A commitment made when the fall could be foreseen would not qualify. If the income left is not enough, part of the gifts may still qualify.
Gifts from capital, or gifts of capital assets such as shares or a house, fall outside this exemption, unless an asset was bought from income for the purpose of the gift. And meeting these tests does not stop a gift being taxed under the gift-with-reservation rules, where you keep using or benefiting from what you gave.
Gifts with reservation, pre-owned assets and gifts into most trusts are outside this free record. Take advice on them.
HMRC applies the gifts-out-of-income exemption first, on the facts alone. It applies the yearly annual exemption last, after every other exemption. So the annual exemption is not used up on a gift that this exemption already covers.
GOV.UK says gifts out of income can be combined with any other allowance except the small-gift allowance.
HMRC's manual says a gift by cheque is not complete until the cheque clears. The date the cheque was written does not matter. So the record asks for the date the money left your account.
The tax year a gift falls in, and the seven-year clock for gifts that are not exempt, both run from that date.
Where value passes through a loan of money, the Act changes the test: s.29(4) replaces the first two conditions with the condition that the loan was a normal one for you. The standard-of-living test still applies. HMRC refers such cases to its specialists.
The record marks a loan as a loan, so it is never listed as a gift out of income.
The gift log keeps box 7's eight columns, in the form's order. You fill the first five. The executors fill B, C and D, because they turn on reliefs and other exemptions worked out after the death. IHT403 itself says: do not deduct taper relief here.
| Column | IHT403's heading | What the record keeps | Who |
|---|---|---|---|
| Date of gift | Date of gift (DD MM YYYY) | The date the money left your account (a cheque counts when it clears) | You |
| Recipient | Name and relationship of individual, charity or other organisation who received the gift | Their name and how they are related to you | You |
| Description | Description of assets given away | Money, a premium, school fees paid for them, and how it was paid | You |
| Exemption | Type of exemption or relief | The exemption you rely on, with its section of the Act | You, checked by the executors |
| A | A - Value at date of gift | The amount | You |
| B | B - Exemptions or reliefs deducted (do not deduct Taper Relief here) | Left for the executors | Executors |
| C | C - Percentage of relief claimed, enter 100% or 50% | Left for the executors (business and farm relief) | Executors |
| D | D - Net value A minus B | Left for the executors | Executors |
HMRC's practice asks about each of these, but box 7 has nowhere to put them. The record keeps them beside each gift.
| Field | What it holds | Why it is there |
|---|---|---|
| Stream | Which regular stream the gift belongs to, such as "birthdays, three children" | HMRC looks for a pattern; a one-off gift is not part of one (IHTM14242) |
| Normal part / excess | Split a larger gift into the normal part and the part above it | Only the normal part can be exempt (IHTM14243) |
| Tax year paid from | The tax year whose income paid the gift | HMRC treats income as capital after two years, absent evidence (IHTM14250) |
| Made by | You, or an attorney, and under which power | In McDowall the attorney had no power to make the gifts (IHTM14251) |
| Recipient's contact details | A current address and phone number | IHT403 asks the executors for them if the recipients have not authorised them to deal with HMRC |
| Loan, not a gift | A mark for a loan | A loan is tested differently (s.29(4)) |
| Evidence kept | Where the bank statement or letter is kept | HMRC does not want it sent, but may ask for it (IHT400 notes) |
Cite boxes, not pages: HMRC's own IHT400 notes (2022) still send executors to "page 6" and "page 2" of IHT403, which moved in the current edition.
| Part of the record | IHT403 | IHT400 | Note |
|---|---|---|---|
| Whether gifts are claimed as gifts out of income | Box 6 | Box 30 opens IHT403 | A Yes at box 6 means pages 2 to 8 are filled in |
| Whether the recipients let the executors deal with HMRC | Page 2 (unnumbered) | — | If not, their names, phones and addresses |
| The gift log | Box 7 (eight columns) | Total to box 113 | Taper relief is never deducted here |
| Gifts into trust or to a company in the 7 years before the earliest gift | Boxes 18 and 19 | — | Why trust gifts are kept apart |
| Income, by tax year | Box 20 | — | Net of income tax |
| Spending, by tax year | Box 21 | — | Including nursing home fees |
| The year's surplus and the year's gifts | Box 22 | — | Set side by side, year by year |
| Gifts you kept a benefit from (outside this record) | Boxes 8 to 12, 17 | Box 104 | Valued at the date of death |
Sources: Form IHT403 (06/26)IHT403 publication pageForm IHT400 (04/26)IHT400 notes (2022) · read 10 October 2026. Our walkthrough of every box: the IHT403 form guide.
Once a year, after 5 April, fill in one column. IHT403 page 8 asks the executors for each year's income, net of tax, each year's spending, and the surplus beside the gifts. It has eight tax-year columns, because seven years before a death can touch eight tax years. Doing it as you go is far easier than rebuilding it from old statements.
The form's own lines. Net of income tax.
| Salary | |
|---|---|
| Pensions | |
| Interest (including PEPs and ISAs) | |
| Investments | |
| Rents | |
| Annuities (income element) | |
| Other | |
| Minus Income Tax paid | |
| Net income | £0 |
Your usual living costs for the year.
| Mortgages | |
|---|---|
| Insurance | |
| Household bills | |
| Council Tax | |
| Travelling costs | |
| Entertainment | |
| Holidays | |
| Nursing home fees | |
| Other | |
| Total expenditure | £0 |
The total of the gifts you are treating as coming from income. The gift log in section 7 totals them for you.
Surplus (deficit) income for 2026–27
£0
Net income £0 − total expenditure £0. Gifts made £0.
Enter a year's income, spending and gifts. IHT403 sets the year's surplus beside the year's gifts.
The yearly line: gifts out of income of £3,000 or less in a tax year are not reported on IHT403.
Plain arithmetic in the lines of IHT403 box 20 to 22. Nothing you type leaves this page. The illustrative year is ours: HMRC publishes no income-and-spending worked example that we found.
Two streams of giving, kept apart. Gifts out of income have no clock if the tests are shown. Gifts that no exemption covers start a seven-year clock. Add your gifts: the log totals each tax year's gifts out of income against the line, and dates the clock for the rest.
Gifts out of income, by tax year
Add a dated gift marked "Out of income (s.21)" and its tax year appears here, with the yearly line.
Each gift, and its clock
Add the date each gift cleared. A gift out of income has no clock if the tests are shown; a gift with no exemption runs seven years.
Calendar arithmetic only. The log never decides whether a gift is exempt, and never works out tax or taper relief: HMRC does that, after the death. Nothing you type leaves this page.
Only for gifts that are not exempt, and only if tax is due on them. Section 7(4) sets each band as a share of the full rate; GOV.UK shows the effective rates. HMRC works out the tax.
| Years between gift and death | Section 7(4) | Effective rate |
|---|---|---|
| Less than 3 years | Full rate | 40% |
| 3 to 4 years | 80% of the full rate | 32% |
| 4 to 5 years | 60% of the full rate | 24% |
| 5 to 6 years | 40% of the full rate | 16% |
| 6 to 7 years | 20% of the full rate | 8% |
| 7 years or more | A gift to a person becomes exempt | None |
The full rate is 40% above the nil-rate band of £325,000. IHTA 1984 s.7GOV.UK: Inheritance Tax giftsIHTA 1984 Sch 1GOV.UK: Inheritance Tax · read 10 October 2026.
A gift that meets the three tests is an exempt transfer from the start. It is not a potentially exempt transfer, so the seven-year clock never runs on it. But HMRC treats it as chargeable "unless and until it is shown to be exempt". If it is not shown, it is treated like any other gift, from the day it was made.
A gift to another person that no exemption covers is a potentially exempt transfer. If you live seven years after it, it becomes exempt. If not, it becomes chargeable. While you are alive you do not report it to HMRC, unless you also make a gift that is chargeable straight away, such as most gifts into trust, in the same or the next tax year.
Taper relief reduces the tax on a gift, not the value counted. It only matters if the gifts, added together, exceed the nil-rate band available, which a band passed on from a late spouse can raise. If there is no tax, there is nothing to taper. HMRC's form says do not deduct taper relief on it: HMRC works it out and sends its own calculation.
HMRC's manual says that if death falls exactly on an anniversary of a gift, the gift is treated as made in the next year band. Read literally, the Act's words "not more than five years" could put it in the earlier band. The record does not decide this: ask an adviser about a gift on a boundary day.
To tax a gift made within seven years of death, the law adds the chargeable gifts made in the seven years before it. So a gift into trust made up to 14 years before death can matter. IHT403 box 18 asks about chargeable gifts in the seven years before the earliest gift listed.
A gift into most trusts is not a potentially exempt transfer. It can be charged when it is made, at half the death rate, and again if you die within seven years. Taper never takes that later tax below the tax already charged. Trust gifts are outside this free record; it only marks them, so box 18 can be answered.
A dated note of your decision to give, made at the time, is evidence. It is not a claim, and it is not enough on its own. The record gives you the headings and leaves the words to you. Nothing on it is a form of words HMRC has approved.
What it does
HMRC's manual accepts that a pattern can be shown by a commitment or firm resolution about future giving that you then kept to. A dated note made at the time is evidence of that decision.
Where a prior decision is shown, a single payment carrying it out may be enough (Bennett, as quoted in Hosking). Without it, a series of payments may be needed.
What it does not do
The Act exempts a gift only "to the extent that it is shown". HMRC treats a gift as chargeable until then. The income and spending record is still needed, every year.
HMRC's manual says a bare statement of intention should not be accepted without supporting evidence. In Hosking (2026) a decision with no documents and no record of who was told failed.
Nothing on this record is approved by HMRC, and no wording makes a claim succeed. HMRC or, on appeal, a tribunal decides on all the evidence.
The PDF prints each with space to write. Keep it with the gift log, and add to the log each time a payment follows it.
| Heading | Why it is there | Source |
|---|---|---|
| The date you made the decision | A decision must come before the gifts it explains | IHTM14244 |
| Who will receive gifts, and their relationship to you | HMRC weighs who received gifts and why | IHTM14243 |
| How much, or how the amount is worked out | A fixed sum or a formula, such as a share of the year's surplus | Hosking v HMRC [2026] UKFTT 406 (TC) |
| How often, and when the first payment is due | A pattern needs predictability or recurrence | Hosking v HMRC [2026] UKFTT 406 (TC) |
| Which income will pay for them | Pension, rents, dividends: income, not capital | IHTM14250 |
| Your usual yearly income after tax, and your usual yearly spending | The third test: enough left to live as usual | IHTM14255 |
| How long you mean to keep giving | A deathbed decision to give "for life" will not do | Hosking v HMRC [2026] UKFTT 406 (TC) |
| Who you told, and when | In Hosking there was no record of who was told | Hosking v HMRC [2026] UKFTT 406 (TC) |
| Your signature and the date | A dated record made at the time | IHTM14244 |
If you are an executor rebuilding this record, start with the bank statements. The steps below are the ones HMRC's forms and GOV.UK set out. For the form itself, box by box, see our IHT403 walkthrough.
GOV.UK tells executors to look through bank statements, talk to the family and read the financial papers, and to record the value and date of every gift. The record is that work done in advance.
Full details must go to HMRC, even if no tax is due, if the person gave away more than £250,000 in the seven years before death. For that test, a tax year's gifts out of income over £3,000 count in full (reg 4(7A)). So the record helps answer whether a full IHT400 is needed.
IHT400 box 30 opens IHT403. A Yes at box 6 claims gifts out of income: list them at box 7 and fill in boxes 20 to 22 for each year gifts were made. IHT403 says not to report gifts of £3,000 or less in a tax year, small gifts, or gifts to a spouse. Use the box numbers: HMRC's own IHT400 notes still point to older page numbers.
HMRC does not want bank statements or bills sent with the form, but expects executors to produce evidence of income and spending if it asks afterwards. GOV.UK says HMRC can ask to see the executors' records up to 20 years after the tax is paid.
If a gift is taxed after all, the person who received it is liable first. The personal representatives become liable only if the tax is still unpaid 12 months after the end of the month of death, and then only out of the estate's assets.
Examples of the evidence of income and spending HMRC may ask the executors for. Keep it; do not send it with the form.
IHT400 notes (2022)GOV.UK: executors' recordsGOV.UK: Inheritance Tax gifts · read 10 October 2026
64 sources, every one read on 10 October 2026. They were first read on 3 October 2026, checked line by line by a separate legal-accuracy review, then re-read in full: every quotation on this page was found again on its source. The form is IHT403 edition 06/26; the IHT400 is edition 04/26; HMRC's IHT400 notes are the 2022 edition.
| Source | What this page takes from it | Its own date | Read |
|---|---|---|---|
| IHTA 1984 s.2 | A gift that is exempt is not a chargeable transfer | — | 10 October 2026 |
| IHTA 1984 s.3A | Potentially exempt transfers and the seven years | — | 10 October 2026 |
| IHTA 1984 s.7 | Taper relief bands (s.7(4)), the lifetime rate and the 14-year look-back | — | 10 October 2026 |
| IHTA 1984 s.11 | Maintaining a spouse, a child or a dependent relative | — | 10 October 2026 |
| IHTA 1984 s.18 | Gifts to a spouse or civil partner | "Long-term UK resident" wording from 6 April 2025 | 10 October 2026 |
| IHTA 1984 s.19 | The annual exemption and its one-year carry-forward | — | 10 October 2026 |
| IHTA 1984 s.20 | The small-gift exemption | — | 10 October 2026 |
| IHTA 1984 s.21 | The three tests, word for word; premiums with an annuity; annuity capital | — | 10 October 2026 |
| IHTA 1984 s.22 | Gifts on a marriage or civil partnership, by the giver's relationship | — | 10 October 2026 |
| IHTA 1984 s.23 | Gifts to charities | — | 10 October 2026 |
| IHTA 1984 s.24 | Gifts to political parties | — | 10 October 2026 |
| IHTA 1984 s.29 | Loans: the changed test in s.29(4) | — | 10 October 2026 |
| IHTA 1984 s.199 | Who is liable for tax on a gift that fails | — | 10 October 2026 |
| IHTA 1984 s.204 | When the personal representatives become liable | — | 10 October 2026 |
| IHTA 1984 Sch 1 | The nil-rate band and the rate above it | — | 10 October 2026 |
| SI 2011/214 (reg 4(7A)) | Regulation 4(7A): gifts out of income over the yearly line count in full | In force 1 March 2011 | 10 October 2026 |
| SI 2021/1167 | The excepted-estate gift limit from 1 January 2022 | In force 1 January 2022 | 10 October 2026 |
| Finance Act 2026 Sch 12 | The 2026 business and farm relief reform behind IHT403's new edition | Finance Act 2026 | 10 October 2026 |
| Mental Capacity Act 2005 s.12 | What an attorney may give (England and Wales) | — | 10 October 2026 |
| Enduring Powers of Attorney (NI) Order 1987 art 5 | What an attorney may give (Northern Ireland) | — | 10 October 2026 |
| Scotland Act 1998 Sch 5 Pt II | Taxes are reserved: Inheritance Tax is UK-wide | — | 10 October 2026 |
| IHTM06027 | David, Joan and Robert: the yearly line in practice | — | 10 October 2026 |
| IHTM06106 | A gift is chargeable until it is shown to be exempt | — | 10 October 2026 |
| IHTM14131 | Which exemptions apply only to lifetime gifts | — | 10 October 2026 |
| IHTM14132 | The order in which exemptions are applied | — | 10 October 2026 |
| IHTM14144 | Using and carrying forward the annual exemption | — | 10 October 2026 |
| IHTM14180 | The small-gift exemption is lost altogether if exceeded | — | 10 October 2026 |
| IHTM14191 | Wedding and civil partnership gift limits | — | 10 October 2026 |
| IHTM14231 | HMRC's statement of the exemption and what it excludes | — | 10 October 2026 |
| IHTM14235 | Life policies and annuities bought together | — | 10 October 2026 |
| IHTM14236 | Loans | — | 10 October 2026 |
| IHTM14241 | Normal means normal for you | — | 10 October 2026 |
| IHTM14242 | No set span; three to four years; Peter's example | — | 10 October 2026 |
| IHTM14243 | Comparable amounts; part of a gift can be normal | — | 10 October 2026 |
| IHTM14244 | A pattern, or a firm decision kept to (Bennett) | — | 10 October 2026 |
| IHTM14250 | Net income; the two-year view; what is not income | — | 10 October 2026 |
| IHTM14251 | McDowall; a bare statement of intention is not enough | — | 10 October 2026 |
| IHTM14255 | The standard-of-living test, year to 5 April | — | 10 October 2026 |
| IHTM14511 | Reporting a potentially exempt transfer in life | — | 10 October 2026 |
| IHTM14514 | Looking back up to 14 years | — | 10 October 2026 |
| IHTM14611 | Taper relief reduces tax, not the gift | — | 10 October 2026 |
| IHTM14613 | A death on the anniversary of a gift | — | 10 October 2026 |
| IHTM14882 | A cheque gift is made when it clears | — | 10 October 2026 |
| Form IHT403 (06/26) | The form the record mirrors: boxes 6, 7, 18 to 22 | Edition 06/26: farm and business relief limit for deaths from 6 April 2026, counting gifts from 30 October 2024 | 10 October 2026 |
| IHT403 publication page | The current edition and its 2026 changes | Last updated 22 June 2026 (Welsh version 6 May 2026; farm and business relief 6 April 2026; exemption column 1 June 2020) | 10 October 2026 |
| Form IHT400 (04/26) | Boxes 30, 104 and 113 | Edition 04/26 (GOV.UK page last updated 3 September 2026) | 10 October 2026 |
| IHT400 notes (2022) | What executors send, and what they keep ready | 2022 edition, for deaths from 1 January 2022 | 10 October 2026 |
| IHT421 (Northern Ireland) | Northern Ireland's probate summary; England and Wales get a reference | Last updated 18 January 2024 | 10 October 2026 |
| Form C1 (Scotland) | Confirmation in Scotland | — | 10 October 2026 |
| GOV.UK: Inheritance Tax gifts | GOV.UK's summary of the gift rules and what to record | — | 10 October 2026 |
| GOV.UK: Inheritance Tax | The standard rate and the threshold | — | 10 October 2026 |
| GOV.UK: check the type of estate | When full details must go to HMRC | — | 10 October 2026 |
| GOV.UK: executors' records | How long HMRC can ask for the executors' records | — | 10 October 2026 |
| GOV.UK: estimate the estate's value | How executors find the gifts | — | 10 October 2026 |
| GOV.UK: trusts and Inheritance Tax | Gifts into trust and the extra tax on death | — | 10 October 2026 |
| OPG: Giving gifts (England and Wales) | The OPG's guidance on gifts by attorneys and deputies | Updated 25 February 2026 | 10 October 2026 |
| OPG Scotland: Information for attorneys | Gifts by a continuing attorney in Scotland | — | 10 October 2026 |
| Care Act 2014 guidance, Annex E (England) | Deprivation of assets in England's care charging | — | 10 October 2026 |
| Welsh Government charging code (2025) | Deprivation of assets in Wales's care charging | Last updated 11 December 2025 | 10 October 2026 |
| CRAG, CCD 1/2023 (Scotland) | Deprived capital in Scotland's care charging | Circular CCD 1/2023 | 10 October 2026 |
| nidirect: your home, assets and care fees | Assets given away and care fees in Northern Ireland | — | 10 October 2026 |
| nidirect: Inheritance Tax reporting rules | Northern Ireland's Inheritance Tax reporting and NIPF7 | — | 10 October 2026 |
| mygov.scot: Inheritance Tax | Scotland's pointer to GOV.UK's gift rules | — | 10 October 2026 |
| Hosking v HMRC [2026] UKFTT 406 (TC) | The 2026 tribunal decision on an undocumented decision to give | Heard 23 and 24 October 2025; judgment 18 March 2026 | 10 October 2026 |
The form itself: IHT403 (06/26), PDF on GOV.UK. A source we could not read on the day is never cited.
The record tells your executors what you gave. It does not tell them where anything else is. When the time comes, your family will be looking for it among everything else: the will, the accounts, the pensions, who to call.
The Family Handover Kit is a seven-part brief for your family: who to call, where things are kept, and the deadlines they will be working to. Say where this gifts record lives, and they will find it. A closing sheet lists anything not yet written down, and where to look for it.
£29, one-off. No subscription and no account. Emailed to you, with a 30-day refund.
Every box of the form → the IHT403 walkthrough · The main account → the IHT400 walkthrough · Whether full details are needed → the excepted estate checker · How long executors keep the papers → how long to keep paperwork
Every answer rests on the sources in section 12, read on 10 October 2026. General information, not tax or legal advice.