Case Report: Clarification of “Normal Expenditure” in Relation to Gifts out of Income

In Jeremy John Hosking v The Commissioners for HMRC [2026] UKFTT 406 (TC), the FTT held that, as the appellant had made no documented commitment, the amount of the gifts varied drastically (and there was no formula or standard to quantify the gifts), and there was no settled pattern to the gifts, that the gifts did not form part of the appellant’s “normal expenditure” for the purposes of s. 21, IHTA 1984 – as such, the gifts were not exempt for IHT purposes as gifts out of income. Note: This case deals with gifts out of income (s. 21, IHTA 1984) and gifts to political parties (s. 24, IHTA 1984). However, we are only considering the gifts out of income point in this case, as it is the interesting tax technical point.

Context

• The appellant was a wealthy individual who made donations to charitable and political causes that the appellant considered worthy causes.
• Between 2015/16 and 2022/23, the appellant made c.£10.8m of charitable donations and c.£11.9m of political donations, with total donations of c.£47.5m during that period.
• The donations relevant to this case are donations made during the period March 2011 to October 2016 totalling £1,737,236 (“the Gifts”).
• The Gifts were made to “No Campaign Ltd”, “Labour Leave Ltd”, “Vote Leave Ltd”, and “Brexit Express”.
• On the basis that the donations were made to corporates and were therefore chargeable lifetime transfers, HMRC issued a determination charging the appellant to £349,309 due to the lifetime 20% IHT charge imposed on chargeable lifetime transfers which exceed the available nil rate band.

 

Grounds of Appeal

• The appellant appealed the determination on the following grounds:
  • The Gifts were part of the appellant’s normal expenditure paid out of income and therefore exempt under s. 21, IHTA 1984 (gifts out of income), or
  • The Gifts were political donations and therefore exempt under s. 24, IHTA 1984 (gifts to political parties), when construed so as to conform with the European Convention on Human Rights.
• As noted above, we will only be considering the first ground in this case report. However, we note that we find it apparent the Gifts do not fall within s. 24, IHTA 1984 nor was there any discrimination here, as the appellant sought to argue.

 

Legislation

• Broadly, IHT is charged on the value transferred by a chargeable transfer unless the transfer is an exempt transfer. Note that a potentially exempt transfer (broadly, to an individual) made 7 years or more before death is an exempt transfer.
• The gifts out of income legislation is found in s. 21, IHTA 1984 and provides that a transfer of value is an exempt transfer if it is shown:
  • The gift was made as part of the normal expenditure of the transferor,
  • The gift was made out of income, and
  • The transferor was left with sufficient income to maintain his usual standard of living after the gift.
• Typically, the intention should be documented, the gifts should be of a similar type/amount made to a defined group of individuals (e.g. grandchildren for school fees), and there should be regularity.
• In this case, income means exactly that (employment income, pension income etc, after tax). Note that income typically loses its income nature and becomes capital after two years.
• To establish whether the transferor is left with sufficient income to maintain their standard of living, surplus income is calculated each tax year, and records should be kept.
• In this case, the only issue is whether the gifts form part of the appellant’s “normal expenditure”.

 

Decision

• The FTT did agree that the appellant made significant donations to what he considered good causes over the years, such that the Gifts were not out of character or abnormal and, in that sense, were “normal expenditure”.
• However, such an interpretation would be too broad for the purposes of s. 21, IHTA 1984. The FTT held that this cannot have been the interpretation of Parliament, as it would cover anyone with surplus income and a history of making donations.
• The FTT applied the points set out in Bennett and others v IRC [1995] STC 54, i.e. that:
  • The Gifts must accord with “a settled pattern of expenditure”.
  • A settled pattern can be established either via examining the appellant’s expenditure over a period of time or via the appellant assuming a commitment or firm resolution regarding future expenditure and thereafter complying with it.
  • There is no fixed minimum period required for the Gifts to be “normal”, provided that the pattern of expenditure is established and conforms with that pattern.
  • The pattern must be intended to remain in place for more than a nominal period and indeed for a sufficient period (barring unforeseen circumstances) to be regarded as a regular feature of the transferor’s annual expenditure.
  • The Gifts do not need to be fixed amounts but, where they are not, it is necessary for them to conform to a formula or standard by which they can be quantified.
  • It is not necessary for the recipient of the Gifts to be the same, it is sufficient that their general character or the qualification for the benefit is established, i.e. family members.
• The FTT held that, as there was no documentation or written commitment to the donations, the appellant did not make a commitment or adopt a firm resolution to support the UK’s exit from the EU.
• In the absence of a written commitment, it is necessary to establish there is a settled pattern over a period of time.
• The appellant argued that the many gifts to political parties over the years constituted a settled pattern. However, the FTT held that these recipients do not have a discernible common general character or qualification for benefit, as what the appellant considers a good cause is far broader than, for example, grandchildren.
• In the case of the Gifts, they were all conceivably made to support Leave and therefore do have a definable common general character.
• However, by the appellants own admission, there was no formula or standard to quantify the Gifts and the amounts varied drastically.
• Moreover, the appellant made the Gifts as and when he chose to and his cash resources allowed. There is a lack of any predictability in the appellant’s donations, even in hindsight, and they do not therefore constitute a pattern.
• As such, due to the lack of documented commitment, the lack of a discernible pattern, and the varying amounts with no standard or formula, the FTT held that the Gifts were not part of the Appellant’s “normal expenditure” within the meaning of s. 21, IHTA 1984.
• As such, the appeal was dismissed and the taxpayer lost.

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