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HMRC internal manual

Inheritance Tax Manual

Reduced rate for gifts to charity: calculating the baseline amount: introduction

The legislation sets out three steps in arriving at the baseline amount. The baseline amount is determined for each component separately unless an election to merge components (IHTM45035) has been made.

Step 1

Establish the value transferred by the chargeable transfer that is attributable to each component.

Step 2

Deduct from this, the appropriate proportion of the available nil-rate band. The available nil-rate band is the ‘nil-rate band maximum’ referred to in IHTA84/s8A(7) that applies at the death, increased as appropriate by any transferable nil-rate band (TNRB) (IHTM43001) and reduced by the amount used up by any previous lifetime chargeable transfers. The appropriate proportion is the amount of the nil-rate band apportioned to the component concerned in relation to the whole chargeable transfer on death. The nil-rate band maximum is not increased by any residential nil-rate band (RNRB) (IHTM46001) or transferable residential nil-rate band (TRNRB) (IHTM46042) that might be available on the estate.

Step 3

Add the amount of the charitable legacy that was deducted at step 1 to the amount determined by Step 2, to arrive at the baseline amount.

The impact of both grossing up and interaction could mean that in certain circumstances, the reduced rate would not be available. So the normal rules for grossing up (IHTM26121) and interaction (IHTM26101) are varied (IHTM45030) for the purpose of establishing whether or not the charitable giving condition is met; but only for that purpose.