»Ê¹ÚÌåÓýapp

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
• »Ê¹ÚÌåÓýapp amount by which the total value of the chargeable specific gifts exceed the threshold × (100 ÷ 60)

Example 1 (includes settled property)

Trevor died on 1 May 2000. »Ê¹ÚÌåÓýapp IHT400 (IHTM10021) shows a free estate of £600,000. »Ê¹ÚÌåÓýappre is no relievable property and no lifetime cumulation, but there is chargeable settled property valued at £250,000.

By Will (IHTM12041)

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

»Ê¹ÚÌåÓýapp chargeable specific gifts which do not bear their own tax total £264,000. »Ê¹ÚÌåÓýappre are no other chargeable gifts in the free estate.

»Ê¹ÚÌåÓýapp grossing calculation is:

Total value of chargeable specific gifts = £264,000

Less whole of nil-rate band -£234,000

Excess = £30,000

£30,000 × (100 ÷ 60) = £50,000

Add the nil-rate band +£234,000

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

You can easily check the result:

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

Add value of the specific gift +£264,000

Chargeable gift = £284,000

»Ê¹ÚÌåÓýapp total chargeable transfer on death is

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

Settled property = £250,000

Total chargeable transfer = £534,000

As Trevor died on 1 May 2000 a calculation would show tax on the death estate of £534,000 as £120,000 of which £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 £1M, including unlisted shares valued at £500,000 which qualify for business relief at 100%. No lifetime cumulation. No other property chargeable on the death.

By Will

• £150,000 free of tax to each of Tina’s four children
• residue to Tina’s spouse absolutely.

Applying the 6 stages (IHTM26104)

Stage 1

»Ê¹ÚÌåÓýapp value transferred after BR is £500,000.

Stage 2

»Ê¹ÚÌåÓýappre are no specific gifts of relievable property.

Stage 3

»Ê¹ÚÌåÓýapp pecuniary legacies totalling £600,000 have to be reduced by £500,000 ÷ £1,000,000

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

Stage 4

»Ê¹ÚÌåÓýapp chargeable legacies as reduced to £300,000 have to be grossed up. »Ê¹ÚÌåÓýappy gross up to (100 ÷ 60) × (£300,000 - £242,000) + £242,000 = £338,667.

Stages 5 & 6

»Ê¹ÚÌåÓýapp chargeable transfer is £338,667 and the residue (£161,333) is exempt.