»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp facts

Emily died in August 2017 with free estate (Entry A) of £750,000, made up of:

• £250,000 personal assets
• £500,000 freehold property, left to her children.

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

Emily also had a life interest in a Will Trust (Entry B), which passes on her death. »Ê¹ÚÌåÓýapp trust is valued at £250,000 at the date of Emily’s death.

Emily made a chargeable lifetime gift of £125,000 (after exemptions) in June 2015.

Emily’s estate qualifies for the residence nil-rate band (RNRB) (IHTM46001). Emily’s husband, Clive, died in May 2011. »Ê¹ÚÌåÓýappre was no unused nil-rate band left to transfer (IHTM43001) following his death but, because no RNRB could have been used on his death, Emily’s personal representatives can make a claim (IHTM46042) to use his unused RNRB (IHTM46040) against Emily’s estate.

Calculate the available nil-rate band

»Ê¹ÚÌåÓýapp Inheritance Tax nil-rate band at the date Emily died 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 transfer of £125,000 first. This leaves £200,000 to be used against the death estate.

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 £750,000 free estate plus £250,000 Will Trust = £1,000,000.

Calculate the available RNRB

»Ê¹ÚÌåÓýapp amount of RNRB at the date Emily died is £100,000 (IHTM46002). Her personal representatives have claimed the RNRB unused on Clive’s death. As no RNRB was used on his death, the amount due on Emily’s death is increased by 100%, to £200,000.

Apportion the available nil-rate band and RNRB

Because there is more than one entry (IHTM31011) we must apportion the available nil rate band of £200,000 plus the RNRB of £200,000, totalling £400,000 between them, before we can work out the tax.

Entry A

£400,000 × £750,000 ÷ £1,000,000 = £300,000

Entry B

£400,000 × £250,000 ÷ £1,000,000 = £100,000

Calculate the tax on Entries A and B:

Entry A

(£750,000 � £300,000) × 40% = £180,000

This is then apportioned between:

• »Ê¹ÚÌåÓýapp personal property (not paid by instalments) £250,000 × £180,000 tax ÷ £750,000 = £60,000
• »Ê¹ÚÌåÓýapp freehold property (paid by instalments) £500,000 × £180,000 tax ÷ £750,000 = £120,000

Entry B

(£250,000 � £100,000) × 40% = £60,000

Calculations

Here we will raise death estate calculations for:

• £60,000 at Entry A (NIOP)
• 10 annual instalments of £12,000 (totalling £120,000) at Entry A (IOP)
• £60,000 at Entry B (NIOP)