Calculating the chargeable estate: definitions
The rules concerning partly exempt transfers operate by allocating the value of the estate between specific (IHTM12082) and residuary (IHTM12082) gifts. In IHTA84/S42 (1) the word ‘gift’ means more than ‘a present’. It is defines a gift as ‘the benefit of any disposition or rule of law by which any property becomes the property of any person or applicable for any purpose’. This definition covers property that passes under a person’s Will or under the rules of intestacy.
Examples of this are
- bequests by Will (IHTM12041) of a sum of money, a specific asset such as a house, a life interest
- bequests by Will of money or assets on charitable trusts
- benefits under laws of intestacy (IHTM12101) or, in Scotland, legitim (IHTM12221)
Specific and residuary gifts are given special meanings for the purpose of the rules. The special meanings of these and other terms are:
Specific gift (IHTM26011)
Any gift other than a gift of the residue or share of residue. Usually, specific gifts are gifts of particular assets or specified amounts.
Gifts of residue
Gifts of the balance of the estate after all the specific gifts have been made.
Bears its own tax
A specific gift bears its own tax if the tax on it comes out of the property given - so the beneficiary gets the gift less the tax due on it.
Free of tax (IHTM26123)
If a chargeable specific gift does not bear its own tax the beneficiary gets the full value of the gift, unreduced by the tax on it. To the beneficiary, the gift is ‘free of tax’.
Grossing up (IHTM26121)
Chargeable specific gifts which do not bear their own tax are ‘grossed up’ to an amount that represents the value of the gift plus the tax on it.
Different funds (IHTM26211)
Each title under which property passes is a different fund
For the purposes of applying the rules concerning partly exempt transfers, the term ‘exempt transfers’ refers to transfers that are exempt from Inheritance Tax under IHTA84/S18 (transfers to spouse or civil partner), IHTA84/S23 (transfers to charity), IHTA84/S27 (transfers for the maintenance of historic buildings) and IHTA84/S30 (conditionally exempt transfers). See also IHTM11012 and IHTM11014
Where the total value of the specific gifts is more than the total value of the estate, abatement reduces the specific gifts so their total value equals the value of the estate.
A term used by us to describe the relationship between exemptions and business relief (IHTM25130) and agricultural relief (IHTM24001).
A term used to describe the deceased’s own property that they were free to dispose of. Does not include joint property (IHTM15011) passing by survivorship (IHTM15081), settled property (IHTM16000) or property over which the deceased had a general power of appointment (IHTM04034) or nominated property (IHTM15101). See also the pages on different funds (IHTM26211) if there is any foreign property.