IHTM26105 - Step 3 - interaction: extent of examination necessary
There are some cases where chargeable specific gifts (IHTM26011) exceed the nil rate band and the residue is wholly exempt. Where interaction (IHTM26102) applies to these types of case you will need to consider the nature and value of the whole estate to establish the appropriate fraction (IHTM26108). But only do so when the tax is worthwhile, as it
is likely to involve establishing the availability of business relief
(IHTM25131) and/or agricultural relief (IHTM24001). In most cases, where 100%
relief is available you will not need to value the relievable property.
Example
Judith's estate is £1,200,000 including unlisted shares worth £300,000 before relief.
She leaves
- a legacy of £200,000 to charity
- residue to children equally.
The s.39A (4) fraction is:
£900,000 ÷ £1,200,000 = 0.75
Applying that to the exempt legacy reduces it to £150,000.
If, however, the shares were worth £400,000 the interaction rules would result in:
£900,000 ÷ £1,300,000 × £200,000 = £138,462
The decrease in exemption (£150,000 - £138,462 = £11,538) would result in a tax increase of £4,615.20.