IHTM31034 - 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 拢600,000, made up entirely of personal assets. Under her Will she left a legacy of 拢50,000 to charity. This reduced the chargeable value of her free estate to 拢550,000.

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

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

Calculate the available nil-rate band

The Inheritance Tax nil-rate band at the date Victoria died is 拢325,000. The amount of nil-rate band that is available to transfer from Daniel鈥檚 death is 拢125,000. This increases the IHT nil rate band on Victoria鈥檚 death to 拢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 拢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 拢550,000 free estate plus 拢250,000 = 拢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 拢450,000 between them, before we can work out the tax.

Entry A

拢450,000 脳 拢550,000 梅 拢800,000 = 拢309,375

Entry B

拢450,000 脳 拢250,000 梅 拢800,000 = 拢140,625

Calculate the tax on Entries A and B:

Entry A

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

拢550,000 - 拢309,375 脳 36% = 拢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%

拢250,000 - 拢140,625 脳 40% = 拢43,750

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Calculations

Here we will raise death estate calculations for:

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