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 拢1.6M. No relievable property. No lifetime cumulation and no other property chargeable on the death.

By Will

  • House and chattels (total value 拢200,000) to surviving spouse
  • Legacies of 拢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 拢294,000 to the children at the rate appropriate to their total value.

拢234,000 + ((100 梅 60) x (拢294,000 - 拢234,000)) = 拢334,000

Stage 2

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

Value of the estate = 拢1,600,000

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

Exempt specific gifts = 拢200,000

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

Value of half exempt residue = 拢533,000

Value of half chargeable residue = 拢533,000

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

Stage 3

Re-gross the chargeable specific legacies

Chargeable free estate = 拢867,000

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

Chargeable estate net of tax = 拢613,800

The gross equivalent of 拢294,000 is 拢294,000 脳 (拢867,000 梅 拢613,800) = 拢415,279

Stage 4

Calculate the chargeable estate.

Value of the estate = 拢1,600,000

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

Exempt specific gifts 拢200,000

Total specific gifts = 拢615,279

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

Value of half exempt residue = 拢492,361

Value of half chargeable residue = 拢492,360

The chargeable free estate is:

Value of the estate = 拢1,600,000

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

Chargeable estate = 拢907,639

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