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IHTM26071 | Other calculations: order in which to apply the partly exempt transfer rules

From HM Revenue & Customs · Inheritance Tax Manual

To minimise the risk of making an error in a case involving more than one of the partly exempt transfer rules you need to apply them in the correct order. This order is as follows

  • Step 1 (IHTM26081) - Set out the starting values of the specific gifts (IHTM26011)

  • Step 2 (IHTM26090) - If the total value of the specific gifts exceeds the value of the free estate , consider abatement (IHTM12086) under IHTA84/S37 (1)

  • Step 3 (IHTM26101) - If any business relief (IHTM25131) or agricultural relief (IHTM24001) has been allowed, apply the interaction (IHTM26103) rules in IHTA84/S39A to reduce the value of the specific gifts

  • Step 4 (IHTM26121) - Gross up the value of any chargeable specific gifts which do not bear their own tax. The value to gross up is the value after any reduction under Step 3

  • Step 5 (IHTM26180) - Compare the total value of the specific gifts (exempt and chargeable), with the value of the free estate after business relief and agricultural relief

    • if the total is less than the value of the estate, the difference is the value of the residue (IHTM12082), but

    • if the total exceeds the value of the estate after relief, there is no residue and you need to consider abatement under IHTA84/S37 (2).