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HMRC internal manual

Inheritance Tax Manual

Step 4 - four stage grossing calculations: exceptions where four stage grossing is not necessary

Where four stage grossing up (IHTM26131) would normally apply there are two situations where you should do a simpler calculation instead.

The first is where the residue is wholly chargeable. Grossing up is not necessary unless there is (or may be) abatement under IHTA/S37 (2) (IHTM26180).

The second exception is where

  • the date of death is on or after 15 March 1988, and
  • the lifetime cumulative total (IHTM31413) exceeds the threshold at the date of death

Where these two conditions apply, the rate of tax on the whole of the death estate must be 40% and grossing up calculation is simply

  • chargeable specific gifts free of tax × (100 ÷ 60)

Examples

  • A specific gift of £180,000 grosses to £300,000
  • A specific gift of £255,000 grosses to £425,000
  • A specific gift of £450,000 grosses to £750,000

In each case a deduction of tax at 40% from the grossed up amount provides the original value of the gift.

Where there is any quick succession relief (QSR) (IHTM22041) due you should refer to the instructions at IHTM26129.