IHTM45010 - Reduced rate for gifts to charity: calculating the baseline amount: estate with a single estate component

Most estates will contain just the deceased’s free estate which is part of the general component (IHTM45007). In these cases, establishing the donated amount (IHTM45002) and the baseline amount (IHTM45009) will be straightforward.

Example

Robert died on 17 June 2012 leaving an estate valued at £750,000 after deduction of liabilities. He leaves a legacy of £50,000 to the National Trust.

The donated amount is £50,000. The baseline amount is calculated following the steps in IHTA/Sch1A/Para 5 as follows:

Estate on death = £750,000

Legacy to charity (donated amount) -£50,000

Chargeable transfer = £700,000 (step 1)

Less nil-rate band -£325,000

Step 2 amount = £375,000

Add back legacy to charity +£50,000

Baseline amount = £425,000 (step 3)

The charitable giving condition (IHTM45002) or 10% test requires that the donated amount is at least 10% of the baseline amount. Here the legacy of £50,000 is more than 10% of £425,000 (or £42,500) so the estate qualifies for the reduced rate. The reduced tax liability will be £135,000 compared to £150,000 at full rate.