Calculating the chargeable estate: introduction
A transfer of value may be:
- wholly chargeable,
- wholly exempt, or
- only partly exempt and partly chargeable.
If the transfer is only partly exempt you will have to work out how much of the transfer is exempt and how much is chargeable. Where exemption is only partly due you have to apply the rules (IHTM26071) contained in IHTA84/S36 - IHTA84/S42.
As well as providing a method of working out what part of the deceased’s estate is exempt the rules also contain provisions that put the burden of the tax liability on the chargeable gifts. Instructions on this begin at IHTM26201.
The rules often have to be applied to transfers on death (IHTM04041) and occasionally to lifetime transfers (IHTM14001). When a lifetime gift is made to two or more people, it is usually treated as a separate transfer to each donee.
Thomas owns the whole of The Gables. By Deed Thomas gives a one-third share to his wife and a two-thirds share to his daughter.
These are treated as two separate transfers. The gift to the wife is wholly exempt under IHTA84/S18. The gift to the daughter is a potentially exempt transfer (PET) (IHTM14024).
One lifetime situation in which the partly exempt transfer rules can apply is when a qualifying interest in possession comes to an end if, for instance, a sum then becomes payable to a charity and the balance goes to a chargeable beneficiary.
As the rules will normally be used to find the chargeable part of a deceased’s free estate (IHTM26003), the instructions in this section assume you are applying the rules to the free estate. But, the rules can apply in other situations. They then operate in the same way as they do in the free estate.