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HMRC internal manual

Inheritance Tax Manual

Step 4 - grossing up: grossing up where there are exemptions with a value limit

Two types of exemption have, or had, a value limit

  • the IHTA84/S18 spouse or civil partner exemption (IHTM11031) (IHTM11032) is limited (IHTM11033) to £55,000 where the transferor is domiciled (IHTM13000) here and the transferee is domiciled abroad, and
  • before 15 March 1988 the IHTA84/S24 exemption was limited to £100,000 for some gifts to political parties (IHTM11192).

When you are deciding the value (if any) to be grossed up (IHTM26121), you may also need to decide how to allocate the amount of the available exemption where

  • the value of the gifts to the beneficiary on the death is more than the amount of the available exemption, and
  • at least one of the gifts does not bear (IHTM26003) its own tax

Where the available exemption has to be allocated IHTA84/S38 (2) provides specifically for this situation. It establishes the priorities and proportions where you have to decide for grossing up

  • which of two or more specific gifts are outside the exemption limit, or
  • the extent to which a specific gift is outside the exemption limit.

In these circumstances

  • gifts bearing (IHTM26003) their own tax qualify for the exemption before gifts not bearing their own tax
  • otherwise the gifts qualify for the exemption in proportion to their values

To cover the situation where more than one gift is exempt or where a gift is partially exempt, the rules are expressed in IHTA84/S38 in terms of the non-exempt excess over the limit rather than of the extent to which the gifts are exempt.