»Ê¹ÚÌåÓýapp

If there are specific gifts (IHTM26011) of relievable property, the appropriate fraction (IHTM26108) has to be adjusted to exclude them and becomes:

• »Ê¹ÚÌåÓýapp value of the free estate after business relief (BR)/agricultural relief(AR) less specific gifts of relievable property at reduced value, divided by:
• »Ê¹ÚÌåÓýapp value of free estate before BR/AR less specific gifts of relievable property at unreduced value

»Ê¹ÚÌåÓýapp following example shows how IHTA84/S39A (3) and (4) apply where there is also a specific gift of relievable property. A more complicated example including four-stage grossing up (IHTM26152) can be found at IHTM26158.

Example

William’s free estate comprises of:

Control holding of unlisted shares (BR at 100%) = £500,000

Land and buildings occupied by the unlisted company (BR at 50%) = £300,000

House and chattels = £200,000

Other property = £500,000

Total = £1,500,000

By Will

• Unlisted shares to son (who bears any tax)
• House and chattels to widow
• £10,000 to charity
• Residue equally to widow and three children

Settled property valued at £250,000 is also chargeable on the death.

Stage 1

»Ê¹ÚÌåÓýapp value transferred is £850,000

(This is £1.5M less £650,000 BR, being 100% of £500,000 and 50% of £300,000. »Ê¹ÚÌåÓýapp settled property is excluded from the S39A calculations).

Stage 2

»Ê¹ÚÌåÓýappre is a specific gift of relievable property, that is the unlisted shares. Under IHTA84/S39A (2) this gift is taken at the value after BR, which is nil.

Stage 3

»Ê¹ÚÌåÓýappre is other relievable property not specifically given. »Ê¹ÚÌåÓýappre are other specific gifts, to the widow and charity, which have to be reduced by the IHTA84/S39A (4) fraction:

(£850,000 - nil) ÷ (£1,500,000 - £500,000), that is

£850,000(A) ÷ £1,000,000 (B) = 0.85

(A) = the reduced value of the free estate less the reduced value of the gift of unlisted shares

(B) = the unreduced value of the free estate less the unreduced value of the gift of unlisted shares.

»Ê¹ÚÌåÓýapp settled property is excluded from the fraction.

»Ê¹ÚÌåÓýapp reduced value of the gifts to the widow and charity are:

Widow

£200,000 × 0.85 = £170,000

Charity

£10,000 × 0.85 = £8,500

Total

(£170,000 + £8,500) = £178,500

Stage 4

No grossing up required

Stage 5

Calculate the residue using the reduced values:

Value transferred = £850,000

Gift of shares = Nil

Less exempt gifts - £178,500

Residue = £671,500

»Ê¹ÚÌåÓýapp widow’s exempt share (a quarter) = £167,875

Stage 6

»Ê¹ÚÌåÓýapp chargeable transfer of the free estate is:

value transferred = £850,000

less exempt gifts - £178,500

less exempt residue - £167,875

Chargeable transfer = £503,625

»Ê¹ÚÌåÓýapp total chargeable transfer on death is:

Free estate = £503,625

Settled property = £250,000

Total chargeable = £753,625