IHTM45024 - Reduced rate for charities: treatment of reduced rate on COMPASS: Example where changes to values affect whether the reduced rate applies or not
Example
Helen died on 20 July 2012 leaving an estate valued at £555,000 after deduction of liabilities, when the IHT400 is delivered. She leaves a legacy of £30,000 to the RSPCA.
The donated amount is £30,000. The baseline amount is calculated as follows:
| Estate on death | £655,000 | |
| Legacy to charity (donated amount) | -£30,000 | |
| Chargeable transfer | £625,000 | (step 1) |
| Less nil-rate band | -£325,000 | |
| £300,000 | (step 2) | |
| Add back legacy to charity | £30,000 | |
| Baseline amount | £330,000 | (step 3) |
To qualify for the reduced rate the donated amount must be at least 10% of the baseline amount. As the legacy of £30,000 is less than 10% of £330,000 (or £33,000) so the estate does not qualify for the reduced rate.
One of the assets in the estate is a house valued at £450,000 at the date of death. In the year following Helen's death the house is sold for £410,000 and loss on sale relief is claimed. This reduces the value of the death estate to £615,000.
The amended calculation of the baseline amount is:
| Estate on death | £615,000 | |
| Legacy to charity (donated amount) | -£30,000 | |
| Chargeable transfer | £585,000 | (step 1) |
| Less nil-rate band | -£325,000 | |
| £265,000 | (step 2) | |
| Add back legacy to charity | £30,000 | |
| Baseline amount | £295,000 | (step 3) |
The legacy of £30,000 is now more than 10% of £295,000 (or £29,500) so the estate now qualifies for the reduced rate.
