IHTM31032 - Assessing: examples of calculations: calculation where there is transferable nil rate band

The facts

Susan died in August 2012 with free estate (Entry A) of 拢800,000, made up of:

  • 拢300,000 personal assets
  • 拢500,000 freehold property.

The personal representatives have asked to pay the tax due on the freehold property by instalments.

Susan also had a life interest in a Will Trust (Entry B), which passes on her death. The trust is valued at 拢200,000 at the date of Susan鈥檚 death.

Susan鈥檚 husband, Michael, died in March 2008 having made no chargeable transfers. He left all his estate to Susan under his will. Susan鈥檚 executors (IHTM05012) have made a claim to transfer the nil rate band (TNRB) that was unused on Michael鈥檚 death to be used against the Susan鈥檚 death estate.

Calculate the available nil-rate band

The Inheritance Tax nil-rate band at the date Susan died is 拢325,000. As 100% of the nil rate band on Michael鈥檚 death is available to transfer to Susan the IHT nil rate band is increased to 拢650,000.

Apply the available nil-rate band to any lifetime transfers first

As Susan made no lifetime transfers the whole of the nil-rate band of 拢650,000 is available to use against the death estate.

Find the chargeable value of the estate at the date of death

The chargeable value of the death estate, after deducting liabilities, exemptions and reliefs is 拢800,000 free estate plus 拢200,000 = 拢1,000,000.

Apportion the available nil-rate band

Because there is more than one entry (IHTM31011) we must apportion the available nil rate band of 拢650,000 between them, before we can work out the tax.

Entry A

拢650,000 脳 拢800,000 梅 拢1,000,000 = 拢520,000

Entry B

拢650,000 脳 拢200,000 梅 拢1,000,000 = 拢130,000

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Calculate the tax on Entries A and B:

Entry A

拢800,000 - 拢520,000 脳 40% = 拢112,000

This is then apportioned between:

  • The personal property (not paid by instalments) (拢300,000 脳 拢112,000 tax) 梅 拢800,000 = 拢42,000
  • The freehold property (paid by instalments) (拢500,000 脳 拢112,000 tax) 梅 拢800,000 = 拢70,000

Entry B

拢200,000 - 拢130,000 脳 40% = 拢28,000

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Calculations

Here we will raise death estate calculations for:

  • 拢42,000 at Entry A (NIOP)
  • 10 annual instalments of 拢7,000 (totalling 拢70,000) at Entry A (IOP)
  • 拢28,0000 at Entry B (NIOP)