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). (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

Example

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

She leaves

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

The s.39A (4) fraction is:

£900,000 ÷ £1,200,000 = 0.75

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

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

£900,000 ÷ £1,300,000 × £200,000 = £138,462

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

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)