IHTM26129 - Step 4 - grossing up: grossing up where there are any reliefs due
If the tax on death is reduced by a relief against tax, such as Quick Succession Relief (QSR) (IHTM22041) or double taxation relief (DTR) (IHTM27161), you should give those reliefs before grossing up (IHTM26121).
Where the value transferred (IHTM04028) is reduced by a relief, such as Business Relief (IHTM25131) or Agricultural Relief (IHTM24001), the values you gross up are the values of the specific gifts after reduction under the interaction (IHTM26101) provisions.
The following examples all take QSR into account.
Example 1 - simple grossing
In this example the deceased died in September 2002. There is free estate of 拢1,000,000. The only chargeable legacies are free of tax legacies totalling 拢280,000. The residue is wholly exempt and there is no lifetime cumulation. QSR of 拢6,000 is due.
Chargeable legacies free of tax = 拢280,000
Less nil-rate band -拢250,000
Excess = 拢30,000
拢30,000 脳 (100 梅 60) = 拢50,000
Add nil-rate band +拢250,000
Total = 拢300,000
Deduct QSR (100 梅 60), or 拢6,000 x (100 梅 60) = 拢10,000
Grossed-up legacies = 拢290,000
This can be easily checked:
Grossed-up legacies = 拢290,000
Less nil-rate band -拢250,000
Excess = 拢40,000
Tax at 40% = 拢16,000
Less QSR -拢6,000
Tax due = 拢10,000
拢290,000 less 拢10,000 tax leaves 拢280,000 to pay the legacies.
Example 2
Using the same details as above, but with a lifetime cumulative total of 拢150,000, the calculation becomes:
Available nil-rate band = 拢250,000 less lifetime total (拢150,0000 = 拢100,000
Chargeable legacies free of tax = 拢280,000
Deduct unused balance of nil-rate band -拢100,000
Excess = 拢180,000
拢180,000 脳 (100梅60) = 拢300,000
Add unused balance of nil-rate band +拢100,000
Total = 拢400,000
Deduct QSR 脳 (100 梅 60), or 拢6,000 脳 (5 梅 3) = 拢10,000
Grossed-up legacies = 拢390,000
This can be easily checked, as above:
Grossed-up legacies = 拢390,000
Plus lifetime cumulative total +拢150,000
Total = 拢540,000
Less nil-rate band -拢250,000
Excess = 拢290,000
Tax at 40% = 拢116,000
Less QSR -拢6,000
Tax due = 拢110,000
拢390,000 less 拢110,000 tax leaves 拢280,000 to pay the legacies.
Where the initial grossing addition is less than QSR 脳 (100 梅 60) then the grossed-up value of the legacies will be the same as their value before grossing up. For example, in Example 1 above, the initial grossing addition is 拢300,000 - 拢280,000 = 拢20,000. If the QSR had been 拢15,000 instead of 拢6,000, the QSR 脳 (100 梅 60) would be 拢25,000. As this is greater than the initial grossing addition of 拢20,000, the grossed-up value of the legacies would remain at 拢280,000.
Example 3 - four stage grossing
The facts are as in Example 1 above, except that only half the residue is exempt.
Stage 1
Gross up the legacies totalling 拢280,000 at the rate appropriate to their total value.
拢250,000 + (拢280,000 - 拢250,000) 脳 (100 梅 60) = 拢300,000, less 拢6,000 (QSR) 脳 (100 梅 60) = 拢290,000
Stage 2
Calculate the initial determination of the chargeable part of the estate:
Value of the estate = 拢1,000,000
Less grossed-up value of legacies -拢290,000
Residue = 拢710,000
Value of exempt residue (50%) = 拢355,000
Value of chargeable residue (50%) = 拢355,000
The chargeable free estate is 拢290,000 + 拢355,000 = 拢645,000
Deduct nil-rate band -拢250,000
Excess = 拢395,000
Tax at 40% = 拢158,000
Less QSR -拢6,000
Net Tax due = 拢152,000
Stage 3
Re-gross the chargeable legacies
拢280,000 脳 拢645,000 梅 (拢645,000 - 拢152,000) = 拢366,328.60
Stage 4
Calculate the chargeable estate
Value of the estate = 拢1,000,000
Less grossed-up value of legacies -拢366,328.60
Residue = 拢633,671.40
Value of exempt residue (50%) = 拢316,835.70
Value of chargeable residue (50%) = 拢316,835.70
The chargeable free estate is:
Value of the estate = 拢1,000,000
Less exempt residue -拢316,835.70
Chargeable free estate = 拢683,164.30
You can check this by adding the chargeable gifts together
Grossed-up legacies = 拢366,328.60
Chargeable residue = 拢316,835.70
Total chargeable = 拢683,164.30
Any cases not covered by the above instructions should be referred to the Actuarial Team to help with the calculations.