IHTM26101 - Step 3 - interaction: introduction
When the value of an estate is reduced by business relief (
IHTM25131) or agricultural relief (
IHTM24001), its value for IHT purposes
is less than its actual net assets value. In such cases, where the
deceased bequeathed specific gifts (
IHTM26003), rules known as the
interaction rules apply. The example below illustrates the
situation.
Example
T’s estate consists of :-
| a farming business | £800,000 |
| other non-relievable property | £600,000 |
| total value | £1,400,000 |
| less relief at 100% on £800,000 | -£800,000 |
| IHT value of estate = | £600,000 |
By will
A pecuniary legacy to spouse of £550,000, residue to the
children
In the above example how should the chargeable residue be
calculated? The actual benefit to the children is £850,000.
But if the full amount of the widow’s legacy of £550,000
was deductible from £600,000, the value of the estate for IHT,
(the chargeable residue) would be only £50,000, which is well
below the tax threshold.
The rules (
IHTM26103) of interaction for dealing
with this type of situation are contained in IHTA84/S39A.
