IHT403

IHT403: gifts and normal expenditure out of income

Last checked 5 October 2026 against HMRC’s forms, guidance and the law · rules version 2026-10-05.1

As of October 2026, Schedule IHT403 is where you list the gifts the person who died made in the 7 years before their death, the exemptions that cover them, and any claim that regular gifts were "normal expenditure out of income". The main exemptions are £3,000 a tax year (plus one unused year carried forward), £250 per person in small gifts, wedding gifts of up to £5,000, and gifts to a spouse, civil partner or charity, which usually have no limit. What is left after exemptions is totalled in box 7 and copied to IHT400 box 113 or box 4 of the IHT400 Calculation, where it uses up the £325,000 nil rate band (the amount that can pass free of Inheritance Tax) before the rest of the estate does.

What IHT403 is for

If you answer Yes to question 30 on the IHT400 (lifetime gifts or other transfers of value on or after 18 March 1986), you fill in Schedule IHT403.

A gift can be money, property or possessions. Selling something for less than it is worth also counts: the difference is a gift. Most gifts to people are "potentially exempt transfers". They become fully exempt if the giver lives for 7 years afterwards, and chargeable if they do not (IHTA 1984 s.3A). Chargeable gifts are counted oldest first against the nil rate band in force at the date of death (IHTM14515).

The form says you do not need to tell HMRC about gifts where the total was £3,000 or less in a tax year, small gifts of £250 or less, or gifts to a spouse or civil partner. IHT403 also covers setting up or adding to a trust, paying premiums on a life policy for someone else, and gifts the person kept using (a "gift with reservation of benefit").

What to gather first

Bank and building society statements for the 7 years before death, to spot larger and regular payments.
Anything showing what a payment was for, such as a house deposit or a wedding.
Standing order records for any regular gifts.
For gifts out of income: pension, interest and dividend statements, tax calculations, and household bills for each tax year concerned.
The names, relationships and addresses of the people who received gifts.

The exemptions at a glance

Exemption	Limit	Law
Spouse or civil partner	No limit (a £325,000 cap applies where the giver was a long-term UK resident and the spouse was not)	IHTA 1984 s.18
Charity	No limit for outright gifts to qualifying charities	IHTA 1984 s.23
Annual exemption	£3,000 each tax year (6 April to 5 April)	IHTA 1984 s.19
Small gifts	£250 per person per tax year	IHTA 1984 s.20
Wedding or civil partnership	£5,000 from a parent; £2,500 from a grandparent or remoter ancestor, or from one of the couple; £1,000 from anyone else	IHTA 1984 s.22
Normal expenditure out of income	No money limit, if three conditions are met	IHTA 1984 s.21

Points to note:

Any unused part of the annual exemption carries forward to the next tax year only, and the current year's £3,000 is used first (IHTM14144). The earliest gift in a year uses the exemption first (IHTM14143).
The small gifts exemption is all or nothing. If gifts to one person in a tax year come to more than £250, none of them is covered by it (IHTM14180).
Above the wedding limit, the excess is chargeable, so another exemption such as the annual exemption can then cover it (IHTM14191, IHTM14132).

Normal expenditure out of income: the three conditions

There is no money limit, but a gift qualifies only if all three conditions in IHTA 1984 s.21(1) are met (IHTM14231):

It was part of the person's normal expenditure. "Normal" means normal for them: a settled pattern of payments, or a commitment they made and then kept, such as a standing order to a grandchild (IHTM14241, IHTM14244). HMRC's manual says three to four years is usually a reasonable span to show a pattern (IHTM14242).
Taking one year with another, it came out of income. Income means income after Income Tax. Gifts from capital do not count, and regular withdrawals from an insurance bond are usually capital. Income that was saved rather than spent is treated as becoming capital after about two years, unless there is evidence otherwise (IHTM14250).
It left enough income to keep up their usual standard of living, without dipping into capital (IHTM14255).

You, as executor, decide whether these conditions are met, and you keep the evidence behind that view. HMRC may ask to see it and may disagree. Part of a gift can qualify while the rest does not (IHTM14231). This exemption is applied first and the annual exemption last (IHTM14132).

The evidence goes in the table on page 8 of IHT403 (boxes 20 to 22): for each tax year with gifts, the person's income after Income Tax, their spending, the surplus, and the gifts made. HMRC's IHT400 Notes say statements and bills need not be sent with the form, but HMRC may ask for them later.

Gifts claimed under this exemption that come to more than £3,000 in a tax year count as chargeable when deciding whether an estate is an excepted estate, one that needs no full IHT400 (IHTM06027).

Filling in IHT403, box by box

Page 1, questions 1 to 6: No or Yes answers about gifts, trusts, life policy premiums paid for others, and (question 6) whether you claim gifts out of income.
Page 2: say whether the people who received gifts have authorised you to deal with HMRC for them. If not, give their contact details.
Box 7 (pages 3 and 4): one line per gift: date, recipient and relationship, description, exemption, column A (value at the date of the gift), column B (exemptions deducted), column C (a relief percentage, only for agricultural or business relief) and column D (A minus B). Do not deduct taper relief here.
Box 7 total: add up column D. Copy it to IHT400 box 113 if you use the simple calculation on page 14, or to box 4 of the IHT400 Calculation. The simple calculation is only for gifts totalling less than the nil rate band.
Boxes 8 to 17: gifts with reservation (boxes 8 to 12) and pre-owned assets (13 to 16). Their total, box 17, goes to IHT400 box 104, not box 113.
Boxes 18 and 19: chargeable transfers, such as gifts into a trust, in the 7 years before the earliest gift in box 7. Their values are left out of the tax calculations.
Page 8, boxes 20 to 22: the income and spending table, if you answered Yes to question 6.

Taper relief and who pays tax on gifts

Gifts within the nil rate band carry no tax themselves but leave less of it for the estate. Tax arises only where chargeable gifts, taken in date order, go over the nil rate band. The people who received those gifts are liable for that tax (IHT403, page 2). It is due six months after the end of the month of death, like tax on the estate (IHTA 1984 s.226(3A)). If it is still unpaid 12 months after the end of the month of death, the personal representatives (executors or administrators) can become liable for it (IHTA 1984 s.204(8)).

Taper relief reduces the tax on a gift, never its value. It applies only where tax is due on the gift itself, after counting earlier gifts, and the gift was made more than 3 years before death (IHTA 1984 s.7(4); IHTM14611):

Years between gift and death	Share of the tax charged	Effective rate
3 to 4	80%	32%
4 to 5	60%	24%
5 to 6	40%	16%
6 to 7	20%	8%

A death on the anniversary of a gift puts the gift in the next band. You do not work out taper relief on IHT403: HMRC sends separate calculations for any tax on gifts. A nil rate band transferred from a late spouse also counts against gifts: see transferring a late spouse's unused nil rate band.

Worked example

These figures are invented. A widow died on 17 January 2026, when the nil rate band was £325,000. In the 7 years before her death she made these gifts:

Date	Gift	A: value	B: exemptions	D: net
15 May 2020	Cash to her son for a house deposit	£20,000	£6,000 annual (2020 to 2021, plus 2019 to 2020 carried forward)	£14,000
10 August 2022	Wedding gift to her granddaughter	£5,000	£2,500 wedding + £2,500 annual (2022 to 2023)	£0
2023 to 2024	£400 a month to her grandson, 12 payments	£4,800	£4,800 out of income	£0
2024 to 2025	The same, 12 payments	£4,800	£4,800 out of income	£0
2025 to 2026	The same, 9 payments before her death	£3,600	£3,600 out of income	£0

Her executor reviewed the standing order, bank statements and pension records, and concluded that the monthly payments met all three conditions. The page 8 column for 2024 to 2025 reads:

Boxes 20 to 22, 2024 to 2025	Amount
Pensions plus interest	£27,400 + £1,600
Minus Income Tax paid	£3,000
Net income	£26,000
Total expenditure	£16,500
Surplus income for the year	£9,500
Gifts made	£4,800

Box 7 is £14,000. It goes to IHT400 box 113, leaving £311,000 of nil rate band for the estate. No tax is due on the gifts themselves, so there is no taper relief.

For taper relief, suppose instead she had given her daughter £360,000 on 1 March 2021. After two years' annual exemptions (£6,000), £354,000 goes in box 7. That is £29,000 over the nil rate band, so the full tax would be £11,600. The gift was made between 4 and 5 years before death, so 60% is charged: £6,960, payable by the daughter. No nil rate band is left for the estate.

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Common mistakes

Leaving out gifts to family, which are potentially exempt transfers like any other.
Carrying the annual exemption forward more than one year, or using last year's £3,000 before this year's.
Claiming the small gifts exemption for someone who received more than £250 in that tax year.
Claiming gifts out of income without evidence of a pattern and of surplus income. A single gift needs strong evidence that it was meant to be the first of a series (IHTM14242).
Putting gifts with reservation in box 7 instead of box 17.
Forgetting earlier gifts into a trust, which belong in boxes 18 and 19.

What happens next

Send IHT403 with the IHT400 and the other schedules. The law allows 12 months from the end of the month of death to send the IHT400 (IHTA 1984 s.216(6)(a)), but tax on the estate is due by the end of the sixth month after the month of death, with interest after that; see inheritance tax interest and late payment. If tax is due on gifts, HMRC sends its own calculations and may contact the people who received them. For the rest of the account, see how to fill in the IHT400.

Common questions

Which gifts go on IHT403?

Gifts and other transfers of value made in the 7 years before death, as well as trusts, life policy premiums paid for others and gifts with reservation. The form says not to report gifts totalling £3,000 or less in a tax year, small gifts of £250 or less, or gifts to a spouse or civil partner.

How much can someone give away each year free of Inheritance Tax?

£3,000 in each tax year under the annual exemption, plus any unused part of the previous year’s £3,000. Small gifts of up to £250 per person, wedding gifts within set limits and gifts to a spouse, civil partner or charity are also exempt.

What is normal expenditure out of income?

Gifts that were part of the person’s normal spending, came out of their income after tax rather than savings, and left them enough income to keep their usual standard of living. All three conditions must be met; the executor decides and keeps the evidence.

Who pays Inheritance Tax on a gift?

The person who received the gift, if tax is due on the gift itself. The personal representatives can become liable if it is still unpaid 12 months after the end of the month of death.

Does taper relief reduce the value of a gift?

No. It reduces the tax on a gift made 3 to 7 years before death, and only where tax is due on that gift because it goes over the nil rate band after earlier gifts.