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HMRC internal manual

# Assessing: examples of calculations: calculation on death where lifetime transfers are less than the nil-rate band

The example on this page shows you how to calculate tax on an estate where there are lifetime gifts that are below the Inheritance Tax (IHT) nil-rate band. It shows you how to do this using the method at IHTM31015

## The facts

Trevor died in June 2012 with free estate (Entry A) of £450,000, made up of:

• £200,000 personal assets
• £250,000 freehold property.

The personal representatives have asked to pay the tax due on the freehold property by instalments.

Trevor also had a life interest in a Will Trust (Entry B), which passes on his death. The trust is valued at £150,000 at the date of Trevor’s death.

• £200,000 (after exemptions) in September 2007, and
• £100,000 (after exemptions) in May 2010

The total is £300,000.

There is no unused nil-rate band from the previous death of a spouse or civil partner to carry over to Trevor’s estate.

## Calculate the available nil-rate band

The Inheritance Tax nil-rate band at the date Trevor died is £325,000. There is no unused nil-rate band to add to this so the available nil-rate band is £325,000.

## Apply the available nil-rate band to any lifetime transfers first

The available nil rate band of £325,000 is used against the lifetime transfers of £300,000 first. This leaves £25,000 to be used against the death estate.

## Find the chargeable value of the estate at the date of death

The chargeable value of the death estate, after deducting liabilities, exemptions and reliefs is £450,000 free estate plus £150,000 = £600,000.

## Apportion the available nil-rate band

Because there is more than one entry (IHTM31011) we must apportion the available nil rate band of £25,000 between them, before we can work out the tax.

### Entry A

£25,000 × £450,000 ÷ £600,000 = £18,750

### Entry B

£25,000 × £150,000 ÷ £600,000 = £6,250

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## Calculate the tax on Entries A and B:

### Entry A

£450,000 - £18,750 × 40% = £172,500

This is then apportioned between:

• The personal property (not paid by instalments) (£200,000 × £172,500 tax) ÷ £450,000 = £76,666.67
• The freehold property (paid by instalments) (£250,000 × £172,500 tax) ÷ £450,000 = £95,833.33

### Entry B

£150,000 - £6,250 × 40% = £57,500.

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## Calculations

Here we will raise death estate calculations for:

• £76,666.67 at Entry A (NIOP)
• 10 annual instalments of £9,583.33 (totalling £95,833.33) at Entry A (IOP)
• £57,500 at Entry B (NIOP)