Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Step 4 - four stage grossing calculations: example of a four stage calculation

The following example is a straightforward four stage (IHTM26152) grossing calculation involving an estate with property at only one title (IHTM26211), no lifetime cumulation (IHTM31413) and no interaction (IHTM26101). A more complex calculation where these aspects are involved can be found at IHTM26158.

Example 1

June dies in November 2000

She leaves free Estate of £1.6M. No relievable property. No lifetime cumulation and no other property chargeable on the death.

By Will

  • House and chattels (total value £200,000) to surviving spouse
  • Legacies of £147,000 free of tax each to the two children

Residue

  • Half to the surviving spouse
  • Half equally between the two children.

Stage 1

Gross up the legacies totalling £294,000 to the children at the rate appropriate to their total value.

£234,000 + (100 ÷ 60) (£294,000 - 234,000) = £334,000

Stage 2

Calculate the initial determination of the chargeable part of the estate.

Value of the estate   £1,600,000
     
Grossed up value of chargeable specific gifts £334,000  
Exempt specific gifts £200,000  
Total specific gifts   £534,000
Residue   £1,066,00
value of half exempt residue £533,000  
value of half chargeable residue   £533,000

The chargeable free estate is £334,000 + £533,000 = £867,000

Stage 3

Re-gross the chargeable specific legacies

Chargeable free estate £867,000
   
Tax on £867,000 (after nil rate band) is £253,200
Chargeable estate net of tax is £613,800

The gross equivalent of £294,000 is

£294,000 × (£867,000 ÷ £613,800) = £415,279

Stage 4

Calculate the chargeable estate.

Value of the estate   £1,600,000
     
Less    
Grossed up value of chargeable specific gifts £415,279    
  Exempt specific gifts £200,000  
  Total specific gifts   £615,279
  Residue =   £984,721
  Value of half exempt residue £492,361  
  Value of half chargeable residue   £492,360

The chargeable free estate is

Value of the estate   £1,600,000
     
Less exempt gifts to spouse    
* Specific £200,000  
* Residuary £492,361  
Total gifts to spouse   £692,361
Chargeable estate   £907,639

(You can check this final step by adding together the chargeable gifts.)

specific £415,279
   
residuary £492,360
Total £907,639