IHTM31031 - Assessing: examples of calculations: calculation on death where lifetime transfers are more than the nil-rate band

»Ê¹ÚÌåÓýapp facts

Ranjit died in June 2012 with free estate (Entry A) of £450,000, made up of:

  • £200,000 personal assets
  • £250,000 freehold property.

»Ê¹ÚÌåÓýapp personal representatives have asked to pay the tax due on the freehold property by instalments.

Ranjit also had a life interest in a Will Trust (Entry B), which passes on her death. »Ê¹ÚÌåÓýapp trust is valued at £150,000 at the date of Ranjit’s death.

In her lifetime, Ranjit made chargeable lifetime gifts of:

  • £200,000 (after exemptions) in October 2007, and
  • £300,000 (after exemptions) in June 2010

»Ê¹ÚÌåÓýapp total is £500,000.

»Ê¹ÚÌåÓýappre is no unused nil-rate band from the previous death of a spouse or civil partner to carry over to Ranjit ‘s estate.

Calculate the available nil-rate band

»Ê¹ÚÌåÓýapp Inheritance Tax nil-rate band at the date Ranjit died is £325,000. »Ê¹ÚÌåÓýappre is no unused nil-rate band to add to this so the available nil-rate band is £325,000.

Apply the available nil-rate band to any lifetime transfers first

»Ê¹ÚÌåÓýapp available nil rate band of £325,000 is used against the lifetime transfers of £500,000 first. »Ê¹ÚÌåÓýapp nil rate band is less than the value of the gifts so there is none left to apply against the death estate. Tax will be due, on the value of the lifetime transfers (£500,000), less the nil-rate band of £325,000 = £175,000 at 40% = £70,000. We will raise a separate calculation for this.

Find the chargeable value of the estate at the date of death

»Ê¹ÚÌåÓýapp chargeable value of the death estate, after deducting liabilities, exemptions and reliefs is £450,000 free estate plus £150,000 = £600,000. »Ê¹ÚÌåÓýappre is no nil rate band to apportion as it has already been used up.

Calculate the tax on Entries A and B:

Entry A

£450,000 × 40% = £180,000

This is then apportioned between:

  • »Ê¹ÚÌåÓýapp personal property (not paid by instalments) (£200,000 × £180,000 tax) ÷ £450,000 = £80,000
  • »Ê¹ÚÌåÓýapp freehold property (paid by instalments) (£250,000 × £180,000 tax) ÷ £450,000 = £100,000

Entry B

£150,000 × 40% = £60,000.

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Calculations

Here we will raise death estate calculations for:

  • £80,000 at Entry A (NIOP)
  • 10 annual instalments of £10,000 (totalling £100,000) at Entry A (IOP)
  • £60,000 at Entry B (NIOP)
  • £70,000 for the tax due on the lifetime transfers