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 £1,000,000. The only chargeable legacies are free of tax legacies totalling £280,000. The residue is wholly exempt and there is no lifetime cumulation. QSR of £6,000 is due.
| Chargeable legacies free of tax | = | £280,000 |
| Less threshold | -£250,000 | |
| Excess | = | £30,000 |
| £30,000 × ( 100 ÷ 60 ) | £50,000 | |
| Add nil-rate band | £250,000 | |
| = | £300,000 | |
| Deduct from this | ||
| QSR ( 100 ÷ 60 ), or £6,000 x ( 100 ÷ 60 ), | -£10,000 | |
| Grossed up legacies | = | £290,000 |
This can be easily checked:
| Grossed up legacies | = | £290,000 |
| Less threshold | -£250,000 | |
| = | £40,000 | |
| Tax at 40% | = | £16,000 |
| Less QSR | -£6,000 | |
| Tax due | = | £10,000 |
£290,000 less £10,000 tax leaves £280,000 to pay the legacies.
Example 2
Using the same details as above, but with a lifetime cumulative total of £150,000, the calculation becomes:
| Chargeable legacies free of tax | £280,000 | |
| Threshold | £250,000 | |
| Less lifetime total | -£150,000 | |
| Deduct unused balance of threshold | -£100,000 | |
| £180,000 | ||
| £180,000 × (100÷60) | £300,000 | |
| Add unused balance of threshold | £100,000 | |
| £400,000 | ||
| Deduct from this | ||
| QSR × (100 ÷ 60),or £6,000 × (5 ÷ 3) | -£10,000 | |
| Grossed up legacies | £390,000 |
This can be easily checked, as above:
| Grossed up legacies | £390,000 |
| Plus lifetime cumulative total | £150,000 |
| £540,000 | |
| Less threshold | -£250,000 |
| £290,000 | |
| Tax at 40% | £116,000 |
| Less QSR | -£6,000 |
| Tax due | £110,000 |
£390,000 less £110,000 tax leaves £280,000 to pay the legacies.
Where the initial grossing addition is less than QSR × (100 ÷ 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 £300,000 - £280,000 = £20,000. If the QSR had been £15,000 instead of £6,000, the QSR × (100 ÷ 60) would be £25,000. As this is greater than the initial grossing addition of £20,000, the grossed up value of the legacies would be remain at £280,000.
Example 2 - 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 £280,000 at the rate appropriate to their total value.
£250,000 + (£280,000 - £250,000) × (100 ÷ 60) = £300,000, less £6,000 (QSR) × (100 ÷ 60) = £290,000
Stage 2
Calculate the initial determination of the chargeable part of the estate
| Value of the estate | £1,000,000 | |
| Grossed up value of legacies | -£290,000 | |
| Residue | £710,000 | |
| value of exempt residue (50%) | £355,000 | |
| value of chargeable residue (50%) | £355,000 | |
| The chargeable free estate is: | ||
| £290,000 + £355,000 = | £645,000 | |
| Less threshold | -£250,000 | |
| £395,000 | ||
| Tax @ 40% | £158,000 | |
| Less QSR | -£6,000 | |
| Net Tax due | £152,000 |
Stage 3
Re-gross the chargeable legacies
£280,000 × £645,000 ÷ (£645,000 - £152,000) = £366,328.60
Stage 4
Calculate the chargeable estate
| Value of the estate | £1,000,000.00 | |
| Grossed up value of legacies | -£366,328.60 | |
| Residue | £633,671.40 | |
| value of exempt residue (50%) | £316,835.70 | |
| value of chargeable residue (50%) | £316,835.70 | |
| The chargeable free estate is: | ||
| Value of the estate | £1,000,000.00 | |
| Less exempt residue | -£316,835.70 | |
| £683,164.30 |
You can check this by adding the chargeable gifts together
| Grossed up legacies | £366,328.60 | |
| Chargeable residue | £316,835.70 | |
| Total chargeable | £683,164.30 |
Any cases not covered by the above instructions should be referred to the Actuarial Team to help with the calculations.
