The relief reduces the tax payable on the death estate. This means the whole of the death estate for IHT purposes, not only the deceased's free estate. It includes
Provided tax is payable on any part of the deceased's death
estate, you must allow any QSR (
IHTM22041) which is due. It does not
matter what part of the deceased's death estate is chargeable.
Example
C inherited a house on the death of a parent in 1998. Tax was
then paid.
C lived in the house and died there in 2000. By Will C left
his estate wholly to his widow. C was also life tenant under a
family settlement. The trust fund, value £300,000 at C's
death, devolved on C's children.
The QSR is due on C's death. The fact that the property which
was the subject matter of the earlier transfer is exempt on C's
death does not matter. As tax is payable on a part of the death
estate, the settled property, the QSR applies.
Because the relief reduces the tax otherwise payable on the
death estate, the relief cannot exceed the amount of that tax. If
the QSR calculation results in a figure greater than the death tax,
the relief is limited to the amount of the death tax. The excess
cannot be paid to the taxpayer
If tax is payable on the deceased's death under more than one
title, you have to apportion the QSR reduction between the
different titles.
Example
T dies in May 2002 leaving a free estate of £300,000. T
was also life tenant of a settled fund of £200,000. Both the
free estate and settled fund are wholly chargeable. QSR of
£10,000 is due on T's death.
The £10,000 QSR comes off the tax on the whole death
estate of £500,000. You must apportion the net amount of tax
after the relief between the free estate and the settled
property:
| Tax on £500,000 | 100,000 |
| Less QSR | 10,000 |
| 90,000 |
Tax on free estate:
| 300,000 | x | 90,000 | = | £54,000 |
| 500,000 |
Tax on settled property:
| 200,000 | x | 90,000 | = | £36,000 |
| 500,000 |
