Step 1 - the starting value of specific gifts: two or more gifts of an asset
An example of when an asset in the estate is disposed of by two or more gifts is where an estate includes a controlling shareholding in, say, an investment company (so no business relief). A half of the holding may be specifically given to the son, leaving the other half taken by the widow as a part of residue. Unless a particular tax treatment is specified in the Will:
- because the focus in the legislation is on the value to the beneficiary (IHTM11013) of the specific gift (IHTM26011), the value of the son’s gift would be only the value of a minority holding, and
- the balance would be attributed to the residuary gift (IHTM12082), inflating that value and the exemption on it.
IHTA84/S42 (3) is a special provision that deals with this kind of situation. Where
- any of the value transferred is attributable to (property which is the subject of) two or more gifts, and
- the aggregate of the values of the property given by each gift is less than the value transferred (or relevant part of it), then
the value of each gift is taken to be the relevant proportion of the value transferred.
Under her Will Trudy gives a house:
- half to her civil partner
- a quarter each to two children
This constitutes three specific gifts.
The house is included in Trudy’s estate at £200,000. The half share by itself is worth, say £90,000 and each quarter share, say £40,000. On these figures the total value of the three gifts when valued separately is only £170,000.
Under IHTA84/S42 (3) you should value each gift as a proportion of £200,000 - giving you £100,000 (gift to civil partner) or £50,000 (gift to each child). (Accordingly you should not ask the DV to value the half or quarter shares.) These values may need adjusting for
- interaction (IHTM26101), if any business relief (IHTM25131) or agricultural relief (IHTM24001) has been allowed, or
- grossing up (IHTM26121), if the shares of the children do not bear their own tax.
The result in this example would be the same if the civil partner had taken the half share as residue, and not as a specific gift.