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If the residue is wholly chargeable, in practice you can normally calculate the chargeable part of the estate simply by deducting any specific gifts (IHTM26011) which are exempt. But, where there is (or may be) abatement (IHTM12086) of the exempt gift under IHTA84/S37 (2), you will have to value the chargeable specific gifts, including grossing up (IHTM26121) those free of tax (IHTM26003).

You must consider interaction (IHTM26101) if there is property reduced by business relief (IHTM25131) (BR) or agricultural relief (IHTM24001) (AR)

Example 1

Amanda dies in January 1998 leaving an estate of 拢500,000. There is no relievable property.

By Will her estate passes:

• 拢50,000 to a charity (IHTM11112) absolutely
• house valued at 拢150,000 to a daughter free of tax
• residue equally to children

There is no need to gross up the gift to the daughter.

Your calculation is simply:

Value of estate = 拢500,000

Less exempt legacy -拢50,000

Chargeable estate = 拢450,000

Example 2

The facts are as in Example 1 except that the estate includes land used by a business valued at 拢400,000 and qualifying for BR at 50%.

The calculation follows the six stages at (IHTM26104) and becomes:

Value of estate = 拢500,000

Stage 1

Less business relief = 拢200,000

Value transferred = 拢300,000

Stage 2

There are no specific gifts of relievable property

Stage 3

Reduce the gift to the charity by the IHTA84/S39A fraction. Because the residue is wholly taxable there is no need to do this for the gift of the house.

(拢300,000 梅 拢500,000) x 拢50,000 = 拢30,000

Stage 4

There is no need to gross up the gift of the house

Stage 5

The final calculation is:

Stage 6

Value of the estate for Inheritance Tax = 拢300,000

Less reduced value of exempt gift -拢30,000

Chargeable estate = 拢270,000