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HMRC internal manual

Inheritance Tax 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.

In his lifetime, Trevor made chargeable lifetime gifts of:

  • £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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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)