IHTM26142 - Step 4 - simple grossing calculations: calculation when there is no lifetime cumulation

If there is no lifetime cumulation (IHTM31413) and the conditions at IHTM26131 are satisfied, the grossed-up value of the chargeable specific gifts (IHTM26011) is

  • the threshold at the date of death, plus
  • The amount by which the total value of the chargeable specific gifts exceed the threshold 脳 (100 梅 60)

Example 1 (includes settled property)

Trevor died on 1 May 2000. The IHT400 (IHTM10021) shows a free estate of 拢600,000. There is no relievable property and no lifetime cumulation, but there is chargeable settled property valued at 拢250,000.

By Will (IHTM12041)

  • 拢88,000 free of tax to each of Trevor鈥檚 three children
  • 拢5,000 to a charity absolutely
  • residue (IHTM26003) to Trevor鈥檚 spouse (IHTM11032) absolutely.

The chargeable specific gifts which do not bear their own tax total 拢264,000. There are no other chargeable gifts in the free estate.

The grossing calculation is:

Total value of chargeable specific gifts = 拢264,000

Less whole of nil-rate band -拢234,000

Excess = 拢30,000

拢30,000 脳 (100 梅 60) = 拢50,000

Add the nil-rate band +拢234,000

Grossed-up value of the chargeable gifts = 拢284,000

You can easily check the result:

Tax at 40% on 拢284,000 - 拢234,000 = 拢20,000

Add value of the specific gift +拢264,000

Chargeable gift = 拢284,000

The total chargeable transfer on death is

Grossed up value of the chargeable gift = 拢284,000

Settled property = 拢250,000

Total chargeable transfer = 拢534,000

As Trevor died on 1 May 2000 a calculation would show tax on the death estate of 拢534,000 as 拢120,000 of which 拢63,820.22 is attributable to the free estate. Because of the settled property, the tax liability is greater than the grossing addition.

As the estate as returned is clearly sufficient to pay the legacies (including that to the charity) and tax, there is no need to consider its value.

Example 2 (includes relievable property)

Tina died 1 October 2001. She left free estate of 拢1M, including unlisted shares valued at 拢500,000 which qualify for business relief at 100%. No lifetime cumulation. No other property chargeable on the death.

By Will

  • 拢150,000 free of tax to each of Tina鈥檚 four children
  • residue to Tina鈥檚 spouse absolutely.

Applying the 6 stages (IHTM26104)

Stage 1

The value transferred after BR is 拢500,000.

Stage 2

There are no specific gifts of relievable property.

Stage 3

The pecuniary legacies totalling 拢600,000 have to be reduced by 拢500,000 梅 拢1,000,000

(the IHTA84/S39A(4) fraction) (IHTM26101) to 拢300,000.

Stage 4

The chargeable legacies as reduced to 拢300,000 have to be grossed up. They gross up to (100 梅 60) 脳 (拢300,000 - 拢242,000) + 拢242,000 = 拢338,667.

Stages 5 & 6

The chargeable transfer is 拢338,667 and the residue (拢161,333) is exempt.