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HMRC internal manual

# Assessing: examples of calculations: calculation with reduced rate where part of the estate passes to charity

## The facts

Victoria died in August 2012 with free estate (Entry A) of £600,000, made up entirely of personal assets. Under her Will she left a legacy of £50,000 to charity. This reduced the chargeable value of her free estate to £550,000.

Victoria also had a life interest in a Will Trust (Entry B), which passes on her death. The trust is valued at £250,000 at the date of Victoria’s death.

Victoria’s husband, Daniel, died in March 2006. He left part of his estate to Victoria under his will. Victoria’s executors (IHTM05012) have made a claim to transfer the nil rate band (TNRB) that was unused on Daniel’s death to be used against Victoria’s death estate.

## Calculate the available nil-rate band

The Inheritance Tax nil-rate band at the date Victoria died is £325,000. The amount of nil-rate band that is available to transfer from Daniel’s death is £125,000. This increases the IHT nil rate band on Victoria’s death to £450,000.

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

As Victoria made no lifetime transfers the whole of the nil-rate band of £450,000 is available to use 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 £550,000 free estate plus £250,000 = £800,000.

## Apportion the available nil-rate band

Because there is more than one entry (IHTM31011) we must apportion the available nil rate band of £450,000 between them, before we can work out the tax.

### Entry A

£450,000 × £550,000 ÷ £800,000 = £309,375

### Entry B

£450,000 × £250,000 ÷ £800,000 = £140,625

## Calculate the tax on Entries A and B:

### Entry A

Because of the legacy to charity Victoria’s free estate qualifies for the reduced rate of tax for charitable gifts of 36% (IHTM45012)

£550,000 - £309,375 × 36% = £86,625

### Entry B

The Will trust is a separate component of the estate for the purposes of calculating the reduced rate and tax will be due on it at the full rate of 40%

£250,000 - £140,625 × 40% = £43,750

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## Calculations

Here we will raise death estate calculations for:

• £86,625 at Entry A (NIOP)
• £43,750 at Entry B (NIOP)