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HMRC internal manual

# 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)

Divided by

• The value of the free estate before BR and/or AR

## Example

This example shows how the rules apply to the illustration in the introduction (IHTM26101)

Harry’s estate consists of

 a farming business £800,000 non-relievable property £600,000 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.

### Stage 1

The value transferred is £600,000

### Stage 2

There are no specific gifts of relievable property

### Stage 3

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).