IHTM26157 - Step 4 - four stage grossing calculations: example of a four stage calculation

The following example is a straightforward four stage (IHTM26152) grossing calculation involving an estate with property at only one title (IHTM26211), no lifetime cumulation (IHTM31413) and no interaction (IHTM26101). A more complex calculation where these aspects are involved can be found at IHTM26158.

Example 1

June dies in November 2000

She leaves free Estate of £1.6M. No relievable property. No lifetime cumulation and no other property chargeable on the death.

By Will

  • House and chattels (total value £200,000) to surviving spouse
  • Legacies of £147,000 free of tax each to the two children

Residue

  • Half to the surviving spouse
  • Half equally between the two children.

Stage 1

Gross up the legacies totalling £294,000 to the children at the rate appropriate to their total value.

£234,000 + ((100 ÷ 60) x (£294,000 - £234,000)) = £334,000

Stage 2

Calculate the initial determination of the chargeable part of the estate.

Value of the estate = £1,600,000

Grossed up value of chargeable specific gifts = £334,000

Exempt specific gifts = £200,000

Residue = £1,066,000 (£1,600,000 - £534,000 total specific gifts)

Value of half exempt residue = £533,000

Value of half chargeable residue = £533,000

The chargeable free estate is £334,000 + £533,000 = £867,000

Stage 3

Re-gross the chargeable specific legacies

Chargeable free estate = £867,000

Tax on £867,000 (after nil-rate band) = £253,200

Chargeable estate net of tax = £613,800

The gross equivalent of £294,000 is £294,000 × (£867,000 ÷ £613,800) = £415,279

Stage 4

Calculate the chargeable estate.

Value of the estate = £1,600,000

Less grossed-up value of chargeable specific gifts £415,279

Exempt specific gifts £200,000

Total specific gifts = £615,279

Residue = £984,721 (£1,600,000 - £615,279)

Value of half exempt residue = £492,361

Value of half chargeable residue = £492,360

The chargeable free estate is:

Value of the estate = £1,600,000

Less exempt gifts to spouse £692,361 (£200,000 specific and £492,361 residue)

Chargeable estate = £907,639

(You can check this final step by adding together the chargeable gifts. £415,279 specific and £492,360 residue totals £907,639.)