Step 3 - interaction: the appropriate fraction where there are specific gifts or relievable property
- The value of the free estate after business relief (BR)/agricultural relief(AR) less specific gifts of relievable property at reduced value
- The value of free estate before BR/AR less specific gifts of relievable property at unreduced value
The following example shows how IHTA84/S39A (3) and (4) apply where there is also a specific gift of relievable property. A more complicated example including four-stage grossing up (IHTM26152) can be found at IHTM26158.
William’s free estate comprises
|Control holding of unlisted shares (BR at 100%)||£500,000|
|Land and buildings occupied by the unlisted company (BR at 50%)||£300,000|
|House and chattels||£200,000|
- Unlisted shares to son (who bears any tax)
- House and chattels to widow
- £10,000 to charity
- Residue equally to widow and three children-
Settled property valued at £250,000 is also chargeable on the death.
The value transferred is £850,000
(This is £1.5M less £650,000 BR, being 100% of £500,000 and 50% of £300,000. The settled property is excluded from the S39A calculations).
There is a specific gift of relievable property, that is the unlisted shares. Under IHTA84/S39A (2) this gift is taken at the value after BR, which is nil.
There is other relievable property not specifically given. There are other specific gifts, to the widow and charity, which have to be reduced by the IHTA84/S39A (4) fraction:
(£850,000 - nil) ÷ (£1,500,000 - £500,000), that is
£850,000(A) ÷ £1,000,000 (B) = 0.85
(A) = the reduced value of the free estate less the reduced value of the gift of unlisted shares
(B) = the unreduced value of the free estate less the unreduced value of the gift of unlisted shares.
The settled property is excluded from the fraction.
The reduced value of the gifts to the widow and charity are:
£10,000 × 0.85% = £8,500
(£170,000 + £8,500) = £178,500 (£
No grossing up required
Calculate the residue using the reduced values:
|Value transferred||= £850,000|
|Gift of shares||= Nil|
|Less exempt gifts||- £178,500|
|The widow’s exempt share||(a quarter)||= £167,875|
The chargeable transfer of the free estate is:
|value transferred||= £850,000|
|less exempt gifts||- £178,500|
|less exempt residue||- £167,875|
|Chargeable transfer||= £346,375|
Chargeable transfer of free estate is £503,625
The total chargeable transfer on death is:
|Free estate||= £503,625|
|Settled property||= £250,000|
|Total chargeable||= £753,625|