IHTM14713 - GWRs: example of calculations

Example 1

In January 2000, Alistair gives a holiday home worth £400,000 (after annual exemption (IHTM14141)) to Brenda but continues to use the home on a regular basis. The PET (IHTM04057) also constitutes a GWR.

Alistair dies in November 2002, having continued to use the holiday home up to his death. It is then worth £450,000 and is treated as part of his estate. The remaining death estate is valued at £500,000. There are no other gifts.

First calculation

Ignore the lifetime charge and charge the holiday home as part of Alistair’s death estate.

Jan 2000 - gift ignored, so tax nil

Nov 2002 - tax on death estate of £950,000 = £280,000 (total tax)

Second calculation

Charge the lifetime gift and ignore the holiday home as part of the death estate.

Jan 2000 - tax on £400,000 gift = £60,000

Nov 2002 - tax on death estate of £500,000 (no nil rate band available) = £200,000

Total tax £260,000.

Conclusion 

The greater amount of tax is payable on the first calculation by charging the property as part of the death estate. Charge this amount and reduce the second charge to nil.