Step 3 - interaction: the appropriate fraction where there are no specific gifts of relievable property
If there are no specific gifts of relievable property, the appropriate fraction (IHTM26108) is
- The value of the free estate after business relief (BR) and/or agricultural relief (AR)
- The value of the free estate before BR and/or AR
This example shows how the rules apply to the illustration in the introduction (IHTM26101)
Harry’s estate consists of
|a farming business||£800,000|
|Total value =||£1,400,000|
|less AR and BR||-£800,000|
|value transferred =||£600,000|
By Will (IHTM12041) Harry leaves a pecuniary legacy of £550,000 to his widow. All the rest of the estate passes to his children.
The value transferred is £600,000
There are no specific gifts of relievable property
The S39A (4) fraction is:
£600,000 ÷ £1,400,000
where £600,000 = the value of the free estate after AR/BR and
£1,400,000 = the value of the free estate before BR/AR
so the reduced value of the exempt legacy is:
£550,000 × £600,000 ÷ £1,400,000 = £235,714
No grossing up
Stage 5 & Stage 6
Residue (chargeable free estate) £364,286
You should look at the guidance at IHTM26105to see to what extent you should examine a case where the residue is exempt.
In this example the specific gifts (IHTM26011) are pecuniary legacies (IHTM12082) but IHTA84/S39A (3) and (4) does not only apply to these. It applies to all cases with specific gifts other than those with specific gifts of assets qualifying for relief (IHTM26103).