IHTM26157 - Step 4 - four stage grossing calculations: example of a four stage calculation
The following example is a straightforward four stage (IHTM26152) grossing calculation involving an estate with property at only one title (IHTM26211), no lifetime cumulation (IHTM31413) and no interaction (IHTM26101). A more complex calculation where these aspects are involved can be found at IHTM26158.
Example 1
June dies in November 2000
She leaves free Estate of £1.6M. No relievable property. No lifetime cumulation and no other property chargeable on the death.
By Will
- House and chattels (total value £200,000) to surviving spouse
- Legacies of £147,000 free of tax each to the two children
Residue
- Half to the surviving spouse
- Half equally between the two children.
Stage 1
Gross up the legacies totalling £294,000 to the children at the rate appropriate to their total value.
£234,000 + (100 ÷ 60) (£294,000 - 234,000) = £334,000
Stage 2
Calculate the initial determination of the chargeable part of the estate.
| Value of the estate | £1,600,000 | |
| Grossed up value of chargeable specific gifts | £334,000 | |
| Exempt specific gifts | £200,000 | |
| Total specific gifts | £534,000 | |
| Residue | £1,066,00 | |
| value of half exempt residue | £533,000 | |
| value of half chargeable residue | £533,000 |
The chargeable free estate is £334,000 + £533,000 = £867,000
Stage 3
Re-gross the chargeable specific legacies
| Chargeable free estate | £867,000 |
| Tax on £867,000 (after nil rate band) is | £253,200 |
| Chargeable estate net of tax is | £613,800 |
The gross equivalent of £294,000 is
£294,000 × (£867,000 ÷ £613,800) = £415,279
Stage 4
Calculate the chargeable estate.
| Value of the estate | £1,600,000 | |
| LessGrossed up value of chargeable specific gifts | £415,279 | |
| Exempt specific gifts | £200,000 | |
| Total specific gifts | £615,279 | |
| Residue = | £984,721 | |
| Value of half exempt residue | £492,361 | |
| Value of half chargeable residue | £492,360 |
The chargeable free estate is
| Value of the estate | £1,600,000 | |
| Less exempt gifts to spouse | ||
|
£200,000 | |
|
£492,361 | |
| Total gifts to spouse | £692,361 | |
| Chargeable estate | £907,639 |
(You can check this final step by adding together the chargeable gifts.)
| specific | £415,279 |
| residuary | £492,360 |
| Total | £907,639 |
