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).聽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. 聽

Example

Judith's estate is 拢1,200,000 including unlisted shares worth 拢300,000 before relief.

She leaves

  • a legacy of 拢200,000 to charity
  • residue to children equally.

The s.39A (4) fraction is:

拢900,000 梅 拢1,200,000 = 0.75

Applying that to the exempt legacy reduces it to 拢150,000.

If, however, the shares were worth 拢400,000 the interaction rules would result in:

拢900,000 梅 拢1,300,000 脳 拢200,000 = 拢138,462

The decrease in exemption (拢150,000 - 拢138,462 = 拢11,538) would result in a tax increase of 拢4,615.20.