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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Calculating the chargeable estate: calculation where residue wholly chargeable

If the residue is wholly chargeable, in practice you can normally calculate the chargeable part of the estate simply by deducting any specific gifts (IHTM26011) which are exempt. But, where there is (or may be) abatement (IHTM12086) of the exempt gift under IHTA84/S37 (2), you will have to value the chargeable specific gifts, including grossing up (IHTM26121) those free of tax (IHTM26003).

You must consider interaction (IHTM26101) if there is property reduced by business relief (IHTM25131) (BR) or agricultural relief (IHTM24001) (AR)

Example 1

Amanda dies in January 1998 leaving an estate of £500,000. There is no relievable property.

By Will her estate passes:

  • £50,000 to a charity (IHTM11112) absolutely
  • house valued at £150,000 to a daughter free of tax
  • residue equally to children

There is no need to gross up the gift to the daughter.

Your calculation is simply

Value of estate £500,000
   
Exempt legacy £50,000
Chargeable estate £450,000

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Example 2

The facts are as in Example 1 except that the estate includes land used by a business valued at £400,000 and qualifying for BR at 50%.

The calculation follows the six stages at (IHTM26104) and becomes

  Value of estate £500,000
     
Stage 1 Less business relief £200,000
  Value transferred £300,000
Stage 2 There are no specific gifts of relievable property  
Stage 3 Reduce the gift to the charity by the IHTA84/S39A fraction. Because the residue is wholly taxable there is no need to do this for the gift of the house.  
  £300,000  
  £50,000 x £500,000 = £30,000
Stage 4 There is no need to gross up the gift of the house  
Stage 5 The final calculation is  
Stage 6    
  Value of the estate for IHT £300,000
  Less reduced value of exempt gift £30,000
  Chargeable estate £270,000